Please excuse the clickbait headline. Such headlines are common online and are designed to lure readers into moving their money from one account to another to get a higher interest rate on savings. Usually, the referring site receives a small fee for each new sign-up.
Rest assured, SMI hasn't entered the financial services referral business(!), but we do encourage you to consider whether moving your money from one savings option to another could be beneficial.
The environment seems to be shaping up for savings account rates to fall. Already, the Fed has cut its "federal funds rate" twice, most recently on Oct. 29, and seems likely to do so again next month. Fed rate cuts put downward pressure on the rates banks are willing to pay on savings.
We haven't seen much reaction from banks so far, but it probably won't be long before interest rates on savings begin to decline.
Consider CDs
The best way to lock in higher rates is to invest in a certificate of deposit, which offers a fixed interest rate for a specified period. Currently, you can secure a rate just above 4.0% APR on CDs lasting from three months to one year.
If you're concerned about tying up your money, you might consider a "no-penalty CD" that allows you to withdraw funds without penalties before it matures, but rates are usually lower for that type of CD.
You can view current CD rates online at DepositAccounts.com and Bankrate.com.
High-yield savings accounts
Unfortunately, you can't lock in an interest rate with a bank or credit union savings account. Still, you can likely earn a much higher rate with an online bank compared to a local one.
For example, my local bank (where I have a checking account but not savings) pays a meager 0.10% APR on savings, which is typical for local banks today. In contrast, current high-yield savings rates offered by online banks range from 3.0% to 4.0% APR (some banks pay even more). So even if online rates were to drop to 2.0% to 3.0%, an online saver would still earn 20 to 30 times more than at a local bank! This demonstrates that it (literally) pays to shop around.
Some banks offer helpful extras
I want to highlight two online banks in particular, not because they offer the highest current rates, but because both provide features that could be useful for tracking your savings.
Capital One enables savers to create multiple savings accounts at no charge, each designated for a specific purpose. For instance, you can have an emergency-savings account, a home renovation account, an insurance-savings account, a Christmas-savings account, and more. Capital One permits up to 25 such "sub accounts."
Ally Bank offers a similar feature called "buckets." Instead of separate accounts, a saver's money is stored in one account, with each bucket having its own distinct bookkeeping. Ally permits up to 30 buckets within a single account.
Importantly, savings accounts at Capital One and Ally are FDIC-insured, so savers can earn more, organize better, and take no extra risk.
Saving within a brokerage account
In late April, I wrote about saving within a brokerage account using a money market fund (MMF), so we won't revisit that information here. (Note: Money-market funds are not FDIC-insured and are different from bank money-market accounts.)
Check the links in that article to find the current rates for MMFs available via Fidelity, Schwab, E-Trade, and Vanguard.
Yesterday, Crane Data, a firm that tracks MMF rates, reported that the current average "7-day yield" among the Top 100 taxable MMFs is 3.80% (a projection of what an MMF would produce over one year based on its income distributions over the past 7 days). Schwab's Prime Advantage Money Fund (SWVXX) — a fund many SMI investors use — is right in line with that average, currently yielding 3.77%.
