After eight interest rate hikes in less than a year, the Federal Reserve isn’t ruling out another one in late March.
Inflation could be cooling some — and we’ll get more data Tuesday morning when the consumer price index for January is to be released — but higher rates are likely to be with us for some time. January’s robust jobs report gives the Fed more reason to watch out for wage gains that could push up consumer prices, fueling inflation.
Higher interest rates give consumers one more reason to tap the brakes before taking on a high-cost loan to make a big purchase.
Higher rates, though, give savers one more reason to shop around for a better deal.
“With the higher rates, it definitely has sparked a lot more attention and a lot more, no pun intended, interest in high yield savings accounts,” said Ken Tumin, who founded DepositAccounts in 2009, which is now part of LendingTree. The site tracks and compares bank rates.
How much more money might you make?
Consumers who have never thought of leaving a traditional bank are being tempted by online banks, many with names they don’t recognize.
Online savings accounts tend to offer far higher rates — and at an even bigger spread than in the past — than brick-and-mortar banks. In some cases, you could make roughly 10 times as much in interest with an online savings account than a typical bank.
The average online savings account yield increased to 3.35% as of Feb. 1, up from 0.456% a year ago, Tumin said.
Yields went up at neighborhood bank branches but still remained well below 1%. Average savings account yields for brick-and-mortar banks increased to 0.33% in mid-January, up from 0.06% a year ago, Tumin said.
“You can definitely make a lot more now in an online savings account,” Tumin said. “It is starting to get the attention of a lot of people.”
In the past, he said, someone with a $10,000 balance in savings might only make $50 a year in extra interest by switching from a traditional bank to an online bank with a high yield. The rapid rise in rates, though, has meant that switching could now mean an extra $300 or $400 a year in interest as big banks still offer absurdly low rates.
more:The Federal Reserve’s smaller interest rate hike could indicate inflation easing a bit
more:Savers watch out for signs of higher CD rates in 2023
What are some of the best yields on savings?
The top online annual percentage yields for savings and money market accounts include 5.03% at Primis Bank; the minimum deposit is $1. And there’s an annual yield of 4.71% for the Index Savings account at Ivy Bank (not available in California); the minimum deposit is $2,500.
Savers can find rates of 4% and higher, Tumin said, if they’re willing to shop around. In some cases, a saver might keep an old bank account and then end up directing some money toward the new online account.
“Savers don’t need to switch banks,” Tumin said. “When a new online savings account is opened, it can be linked to an existing checking or savings account.”
Linking the account allows the saver to electronically transfer money back and forth. The existing checking account, he said, can then continue to be used for direct deposits and monthly bills.
Points to consider: You’re often not going to want to withdraw money more than six times a month from a savings account or you risk being charged a fee or face having the account being closed. Check with the bank on its rules. Also review what kind of mobile banking app might be available if that’s how you bank. Does the bank have a mobile app on the Google Play store or the Apple store?
Savers who think inflation will soon get under control might be more willing to lock in higher rates for a while by putting their money into a high-yield certificate of deposit.
CD rates remain attractive
Overall, the rate of hikes has slowed a bit in the last two months on CDs, Tumin said. Several banks nudged rates down on longer term CDs, such as five-year CDs, on the theory that inflation will pull back.
Even so, CDs are definitely worth a look if you won’t need that money in a year or longer.
Oddly enough, rates on one-year or 18-month CDs could be higher in many cases now than the rates offered on five-year CDs. That’s because some see rates pulling back in a few years.
It’s possible to find CDs now at 4.5% to 5%. Many times, the higher rates are being offered by credit unions but many people are easily able to join some of these credit unions.
There are two nationally available 5% CDs from banks, Tumin said. Sallie Mae Bank through the SaveBetter.com platform is offering a 5% APY on a 27-month CD, no minimum balance. And Capital One is offering an 11-month 360 CD at 5%, again no minimum balance.
New Orleans-based Crescent Bank, which made its mark offering auto loans to consumers who were not being served by traditional lenders, has a 4.65% APY on a 30-month CD with $1,000 minimum savings.
“If you think rates are going down in 2024, sometime this year might be time to lock into a longer-term CD,” said Tumin.
By locking into a higher rate, you’d do better when the rates fall.
Is there a risk of running into a fake bank website?
When it comes to banking, many consumers are concerned about running into a fake offer. They’ve heard the warnings about phishing attempts and the like.
Scammers are using sophisticated phishing attempts to ultimately try to trick consumers into using person-to-person payment apps to transfer money to the crooks. The apps include Cash App, PayPal, Venmo and Zelle.
These scams might be connected to applying for a new job or scaring people into thinking that they forgot to pay the gas bill and need to pay the utility bill right now via Zelle or another app.
Consumers also want to watch out for fake texts that could tell a banking customer to contact their bank at what ends up being a fraudulent phone number or website. You don’t want to hand over usernames and passwords to crooks.
Tumin said he had run across suspicious websites that advertised higher-paying CDs in the past. A few years ago, one case involved a brand-new domain name — something that should be a red flag to a potential scam involving a bank. In another case, the promotion claimed to be a division of a certain bank. But when he called that bank, they said they had no such division or promotion.
He said the FDIC has an online tool called BankFind Suite that allows you to enter a website address to verify if it belongs to a member FDIC institution. The tool has limits and has had its hiccups, but it can be helpful.
“It’s common for banks to create separate websites for their online divisions,” Tumin said. And not all banks provide the FDIC with the websites of their online divisions. So, it can get tricky. But one way to use the tool, he said, is to go to the first field of the BankFind form and under “Select Search Type”, you’d select “Web Address/URL”.
Then, Tumin suggested typing the website address of the bank in question. (Exclude the https:// from this type of search.)
The good news is that we don’t need to rush with many of these offers. Higher interest rates could hang around awhile in 2023.
This article originally appeared on Detroit Free Press: Online savings accounts, CDs tempting while interest rates are high