How to easily find a savings account that will earn you more money
- A recent study by Goldman Sachs found that 60% of survey participants didn't know the annual percentage yield (APY) on their savings accounts.
- Here, author Gina Ciliberto describes how finding a savings account with a better interest rate can be just a quick search away.
In an effort to teach me the importance of saving money, my mom started a savings account for me when I was six years old.
As a child, I remember filling out paper deposit slips, diligently writing each digit of what seemed like an impossibly long bank account number. When I visited a physical location, the teller thanked me for being a loyal Wells Fargo customer for one, then two, decades. My banking routine had a sentimental aspect to it.There was only one problem: The interest rate on my savings account was 0.01%. As I gained pennies on my money each year, I knew that maintaining the account wasn't practical. A quick Google search revealed a slew of savings accounts that offer over a 2.0% annual percentage yield (APY), sometimes as high as 2.25%.
Of course, even a relatively high interest rate of 2% on a savings account won't beat inflation, and I realize the importance of investing money for the future outside of savings accounts. But, if you're putting money into a savings account, getting the best possible interest rate is a place to start.
The importance of APY
It turns out, I'm not alone in my lack of education around the importance of APY for savings accounts.
In March 2018, Marcus by Goldman Sachs took to the streets of New York City to ask 1,053 randomly selected interviewees about their banking practices. They learned that nearly 60% of participants didn't know the APY on their savings account. Over 50% of participants had opened accounts without looking at any other options.
As Dustin Cohn, head of brand and marketing communications at Marcus by Goldman Sachs, told Business Insider: "The national average APY is 0.35% on savings accounts, but even that is higher than what average consumers are getting."
Gobankingrates.com lists the national average APY as even lower, a meager 0.08%. In fact, many people in the Goldman Sachs study had their money in accounts with a 0.1% APY, or lower, Cohn noted.Goldman Sachs calculated how much a general lack of awareness around savings account APY costs Americans each year, considering that people can get a 2% or higher APY, but only earn 0.35% on average. The result: Americans are missing out on $25 billion per year.
"Americans are not taking advantage of the chance to maximize their savings," Marcos Rosenberg, head of US deposits at Marcus, told Business Insider. "By not exploring better savings account options, they are essentially stuffing money under their mattresses instead of switching to a bank partner that helps them increase the value of their hard-earned money."
Americans' lack of savings
For Georgia Lee Hussey, a certified financial planner and founder and CEO of Modernist Financial, this lack of awareness is not surprising. She said that it's common for people to not consider the impact of their banking structures on their financial situation. The real culprit here, she said, is a general lack of maintenance in one's financial life.
"It's best practice to evaluate where you're banking and what you're getting from your accounts every couple of years," Hussey said.
Perhaps one reason Americans don't seem to research their savings accounts is that many don't put much money in savings accounts in the first place. Goldman's March 2018 study also revealed that 56.13% of Americans currently have less than $5,000 in a savings account. This month, Smart Asset reported that the average American under 35 years old has $1,580 in savings. Americans aged 35 to 44 have $5,000.
Hussey is an advocate of having multiple savings accounts: one emergency fund with three-to-six-months (freelancers, independent contractors, and people who own a business should have at least six months) of cost of living expenses, and others with specific short-term savings goals like an upcoming vacation, new car, education, or wedding. Beyond an emergency fund and specific, goal-oriented savings, money should be invested, Hussey said.
Finding the right bankHussey encourages clients to fully research where they're putting their money, and to become informed on everything from hidden fees to corporate values. She urges clients to consider credit unions or Benefit Corporation banks that often offer high APY and match customers' values.
"The question is whether your bank is going to operate in your best interest," Hussey said. "Banks with Community Development Financial Institutions Fund (CDFI) investments put some portion of their deposits toward helping the folks who are typically not served by the financial industry. I also encourage clients to research how many of their bank's loans go to local businesses. A big bank can say they do these things, but it's such a tiny percentage of their portfolio that it's not meaningful."
Regardless of how much money you have in your savings account, there's no reason not to maximize your returns. Savings accounts, checking accounts, CDs, and investments can all be opened online, many of them through mobile apps.
As Cohn put it: "You can sit on your couch and have a better savings account in five minutes."
He's right: finding higher interest rates doesn't have to be laborious. After a few minutes of Google searches, I found an account that was a better fit for me. Now, I'm a brand-new customer at a different bank, and my interest rate is, happily, over 2%.
"People work hard for their money," Cohn added. "Their money should work hard for them."