Which is better – earning $57 in interest or $430? It’s not a trick question. Yet many people accept $57. Why? Inertia.
The average interest rate paid on a savings account in October 2024 was 0.57%, according to Bankrate.com. That means if you have a $10,000 emergency fund, you earned $57 in interest…for the entire year.
Adding insult to injury, now think about what you’re paying for things. Inflation is 2.6% which means you paid, on average, 2.6% more for things (food, furniture, a doctor’s appointment) this September compared to last September.
Your savings are losing ground to inflation, worth less today than a year ago.
What to do?
Fight inertia. Open a High Yield Savings Account, many of which are paying over 4% even as the Fed lowers interest rates. Often, rates are better from online banks with names you’ve never heard of, because they have less overhead to pay – no “brick and mortar” buildings to maintain and branch staff to pay.
Do some comparison shopping on sites like Bankrate and NerdWallet and ask yourself:
- What’s the interest rate for the amount you plan to deposit? The higher your balance, the more you usually earn. Compare the APR, or Annual Percentage Rate among banks.
- What’s the minimum deposit required? Can you meet that minimum over time?
- Are your savings FDIC insured? That protects your money up to $250,000 if the bank were to fail. If you’re lucky enough to have more than that, you may want to consider investing a portion in the market or opening more than one savings account.
- If you need to withdraw money, what are the options? Can you link to your checking account at another bank? Are there ATMs?
Inertia is expensive. It takes 10 minutes to open a High Yield Savings account and start earning hundreds more on your precious savings. What are you waiting for?