Your Bank’s Savings Account Probably Sucks (And What You Can Do About It)

March 15th, 2007 • Related • Filed Under • by admin

When people shop for banks, it’s surprising how little their response has to do with banking. I went around and asked some of my friends and associates where they bank, and why they choose to go there. The responses I received were shocking. “It’s on my way to work,” one person said. Another told me about how the bank offered free pop-corn. The fact is that the average consumer does not take a very close look at where they are storing their money, and major banks know this.

Some of America’s very large banks, such as Wells Fargo and Citibank offer extremely low interests rates, far less than the rate of inflation. They do this because they know as long as customers get some sort of interest payment; they will think they are getting something worthwhile. Currently Wells Fargo offers an interest rate of .2% for their regular savings, and the highest rate they even offer is 4.01%, but that is only if you have a balance of $100,000 or more and have a PMA prime checking account with Wells Fargo.

There is a huge disparity between the amount of interest these banks offer compared to that of open market. There have been a number of banks online which are currently offering between 5% and 5.5% interest, often with no minimum balance and check-writing privileges. Some of these are even FDIC insured. The rates are twenty-five times that of Wells Fargo’s going rate!

Since they are online banks there’s not exactly a branch around to make deposits and withdrawals. In order to make a transaction, you can either mail them a check or transfer funds electronically from your checking account at a local bank, which is the easiest option. However, because there is no branch, they do not have to pay for real-estate, tellers, and other expenses, which allows them to offer their customers a much higher rate of return on their money.

Some might question the reliability and trustworthiness of these online banks, such as EmigrantDirect and GMAC Bank, however they are reviewed by customers who use them on independent sites such as BankRate.com, and are governed by the same laws and regulations that govern traditional brick and mortar banks.

In order to get started with one of these online savings accounts, you can visit a site called Bank Rate which will compare hundreds of different banks, tell you about their overall quality, their minimum balances, their interest rates, and much more. Bank Rate also has information about a number of other types of accounts (mortgages, checking, etc), for you to compare as well. Compare the information, find a bank you like, and start saving!