In our day-to-day digital lives, apps of all varieties—from health and fitness apps to coupon apps—can make our lives that much easier. And thanks to the ease of checking balances with the tap of an app (as well as valuable assistance from robo financial advisors), it's no surprise that online savings accounts have become the norm. But just as you'd look for a strong interest rate with your brick-and-mortar banking institution, are you seeking a higher savings yield with your online accounts? Is that even possible?
The answer is yes. Here are few expert tips from financial advisors on how to gain higher virtual savings interest rates—so your money can make you money while you're off living life.
Know your rates.
When it comes to seeking out higher yields for your accounts, the first step is knowing a good range of interest rates to pursue. Like most things in life, interest rates fluctuate, whether you're banking digitally or in person.
Kerry Keihn, financial advisor and director of client services and operations at Earth Equity Advisors shares that a solid (current) interest rate to seek is in the range of 0.15 percent to 0.60 percent.
Naturally, you'll want to stay on top of the information your bank gives you as rates change. This way, you can make informed choices—including, if necessary, transferring your balances to another location where you'll be earning the most.
Determine which bank is right for you.
Once you have the percentage of interest you hope to earn with your account, it's time to see if your current bank matches that rate. If not, you can consider switching to a bank that offers your targeted interest rate.
Ellen Li, CFP, MSNA, lead advisor and partner at Financial Alternatives recommends checking your current bank's 1099-INT statement and going from there. "Sometimes investors think they are earning one rate, but the actual rate they are earning is a lot less," she says.
Li also echoes the earlier advice to keep tabs on fluctuations in interest rates. The rate from one bank might be competitive now...it might not be competitive at all in a year or two," she adds.
Before you up and switch banks, take time to do your research to see what online bank is right for you—not only in terms of interest rate, but also in terms of accessibility, fraud protection, points and perks, and more.
"Most online banking options have a lot of features and are user-friendly, but you want to be sure that by switching banks you won't miss something you use regularly," Keihn advises.
Remember to read the fine print.
Now that you've found an opportunity to capitalize on a higher online savings interest rate, it's important you read the fine print. Often, other stipulations, such as higher fees, come along with a better interest rate.
Keihn urges consumers to take their time comparing fees at their current bank versus various other banking options. She points out that while online banks are more affordable than traditional in-person-only options and tend to have higher yields, they can come packaged with higher fees. Therefore, making the transition may not be worth your while.
In addition to clocking those potentially steeper fees, Li advises savers to monitor the amount of money they plan on accruing in digital savings over time: Make sure it stays below the FDIC limit of $250,000. In addition, triple-check to make sure your online bank is FDIC-insured.
Last but not least, in certain states, such as California, online banks may not support trust accounts. If that's important to you, make sure you ask before switching banks.
Consider a savings hybrid option.
For those who aren't yet ready to have all of their assets online, Keihn shares that it's perfectly acceptable to move part of your savings to digital and keep a remaining balance in a brick-and-mortar bank. As of today, the average United States interest rate is a mere 0.6 percent, but Keihn says this doesn't mean there isn't an opportunity to seek out higher yields.
"In addition to evaluating a bank based on its fees and interest rates, don't forget you can also evaluate how it aligns with your values," Keihn adds. Just because online accounts are an app tap away, don't overlook local branches as well as credit unions. "Local community banks and credit unions often have good interest rates with online banking features, and are important community players (some even provide financing for green home improvements)," she explains.
All in all, opting for this type of two-part, hybrid savings account—with one account at a small local bank or credit union and another at a major online bank earning you high interest—may be your best bet to earn the most for your money while maintaining your peace of mind.