There is one bright spot in this turbulent stock market and economy. Interest Rates on our High-Yield Savings Accounts are finally starting to rise. Sure, inflation and the price per gallon of gas are soaring. The cost to buy a home increases with each rate hike (or anticipated rate hike), causing the red-hot housing market to finally cool. However, one of the hidden benefits is….at least your high-yield savings account will earn you a higher interest rate on idle cash.

For the last decades, interest rates have been at record low levels. This has kept mortgage rates and other loan products’ rates down. The theory makes sense, right? If it is cheaper to borrower, consumers and businesses will take advantage and invest a home, buy a car, or take out a new business loan.

An unintended consequence is that the low interst rates of the last decade have resulted in low interest rates for deposit accounts. The large, well capitalized banks are flooded with deposits. Therefore, they don’t need to increase their interest rates to attract new deposit accounts. If anything, the last thing they need is more cash that they couldn’t lend!  If you bank with Chase, Key Bank, Fifth Third, or one of the other major banks, chances are, you are earning nothing on the deposit account.

The low interest rates aren’t just prevalant in the large institions. Super Regional banks, regional banks, community banks, and credit unions have all struggled to offer their customers high interest rates.  Several have tried, offering various CD promotions over the yield. In fact, I remember that several credit unions offered 13 month CDs with an interest rate of 2%. Boy how lucky we were to see those kind of offers!

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Fintechs and Internet Banks Fill a Void

With traditional banks and credit unions struggling to offer high interest rates on savings accounts, fintechs, banks, credit unions, and even credit card companies that are looking to fill establish an online presence stepped their game up.  They offered solutions over the years to help drive customers to their institutions.

Digital Federal Credit Union comes to mind. The Digital Federal Cedit Union Savings Account offers you a 6.00% APY on the first $1,000 deposited and .15% APY on each additional dollar thereafter.  The yield on your first $1,000 increases significantly; however, there are limitations to what you can earn with this promotion.

Banks such as Ally Bank, Marcus (by Goldman Sachs) and Citi have also looked to offer high yield interest rate accounts to build an online presence. These are some of the more established brands in the high-yield savings account market. Rather than open traditional branches in new networks, they are instead focusing on building their digital presence. Even credit card companies are getting in on the game. American Express and Discover both offer high yield savings account products!

Then, there are the fintechs that became banks. SoFi (Get $25 when you create a new account and deposit $10) and LendingClub entered the market by force with strong savings account product offerings. Fintechs have an interesting business model that can be expensive if they are not a bank. Offering consumers a high-yield savings account with rates near 3%-4% is significantly cheaper than other fintech business models that require borrowing at higher interest rates. It is a no brainer and easy benefit they can offer.

Interestingly, there are some fun fintechs too that are gamifying savings. We both love Yotta (Sign Up Link). Yotta offers a .2% APY on all funds + additional savings every week based on the results of their raffles. The more you deposit, the more raffle tickets you own. Then, the more chances you have to win and increase savings. This has allowed me to consistently earn between 1% – 2% APY on my emergency fund.

Interest Rates Are Starting to Rise

The beauty of having some many options is that competition will benefit the consumers. With interest rates rising, you are already starting to see the major players increase the interest rates on their high-yield savings accounts. SoFi now pays us 3.75% APY on savings accounts (as of December 2022). Sweet!

Interest rates in this area of banking are rising, and that is a good thing. We are finally earning SOMETHING again on our idle cash.  Will this offset the cost of inflation? No. Will this offset the impact of higher gas prices? No.

You know what this will do though? It will allow you to earn more on your emergency fund and cash that was just sitting in a bank account. We always advocate keeping your emergency fund in an FDIC insured institution and investing all cash once your emergency fund is set.

The rising interest rate environment will put some extra cash in your emergency fund by paying you a higher interest rate. That’s why this is one of the few bright spots in a tough market and economic environment.

Summary

One other fun point. These insitutions make it VERY EASY to open an account online. If you currently don’t have a high-yield savings account, you can easily open one in minutes. They make it very easy to start earning more.

If you aren’t sure which insitutions offer solid high-yield savings accounts, here are a few. You can always go to sites like Nerdwallet or Bankrate as well to review other options.

• Sofi (Sign Up Link)
• Yotta (Sign Up Link)
• LendingClub (Website)
• Ally Bank (Website)
• Citi Bank (Website)
• Marcus (by Goldman) (Website)
• Barclays Online Savings Account (Website)
• Digital Federal Credit Union (Website)
• Discover (Website)
• American Express (Website)

Let us know in the comment section what your favorite high-yield savings account is and what interest rates you are currently earning on your savings account!

-Bert

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