If you’re one of the millions of Americans that have money tucked away in online savings accounts, you’ve probably noticed over the last 30 months, the slow and steady decline of your savings account rate. Just a few years ago, 5% APY was a common savings account interest rate and online savings accounts were one of if not the best place to invest your money. Nowadays, finding anything over 1% has become quite the challenge and online savings accounts are looking less and less attractive. Some have resorted to offering cash sign-up bonuses, but even those have dwindled down to $10 and $20 on average. So just how low can online savings account rates go?
Over the last 25 years, savings, money market and high yield CD rates have fluctuated depending on the state of the economy. When banks and lenders are charging higher interest rates and lending more money, they need you as a supplier so their willing to give a higher interest rate. On the other hand, when lending is extremely tight, as it is now, the value of your money to the bank is not as high, therefore their willingness to give a higher interest rate is minimal.
In 1988-89, the saving account rate was around 6%. Even though there were no online savings accounts 21 years ago, one would imagine that if there had been, the online rate would have hovered just above that amount. For the next 14 years, savings account rates began to drop. And in 2003-04, the average savings account interest rate was less than 0.25%! That rate grew quickly to the 5%+ rate we saw just a few years ago, and once again, we’re in the pits with an average rate of 0.68% (As of 6.14.2011)
While things won’t get as bad as a 0.05% savings account rate, you can expect your current online savings account to continue sending out notices of dropping APY’s. Only after the banks have stabilized and the unemployment rate begins to decline will you see banks attracting new customers with higher interest rates. So even though you won’t find amazing rates now, there are still a few banks offering a rate just high enough to make saving money online a worthwhile venture.
SmartyPig / (1.35% APY) – Unlike your traditional savings accounts, SmartyPig has a few restrictions in depositing and withdrawing but with an interest rate that far exceeds that of it’s competition, SmartyPig is making a wave in the online savings account community. When SmartyPig initially launched, there were a lot of fees associated with their accounts but after removing nearly all of them, SmartyPig is a highly attractive option.
Discover Bank / (1.15% APY) – Discover is fairly new to the online banking space and has made an impact with offering top tier interest rates. Discover Bank also offers high yield traditional CD’s, IRA CD’s and money market accounts and has a strong brand name behind them.
Ally Bank / (1.04% APY) – Ally has spent a lot of time and effort re-branding themselves from the GMAC bank of old and it seems to be paying off. Kiplinger recently voted them the best online savings account for 2010 and even though they change their rates on almost a daily basis, the customer service and product selection continues to be the best of the best.
FNBO Direct / (0.85% APY) – First National Bank of Omaha is one of the oldest and most trusted brick and mortar banks around and after launching a product online, they continue to shine. FNBO Direct also has a visa credit card that can be connected with your online savings account; something new and unlike other online savings accounts.