At long last, banks are becoming a little more generous with savers.
But the emphasis here is on “a little.” If you have been looking around for higher interest rates, you’ll be able to find an appetizer now, but not a feast.
And don’t expect them to come to you. Higher interest rates probably won’t be served up by your friendly neighborhood banker. You are going to have to hunt for them. Here are four ways savvy savers can snag higher interest rates.
•Avoid bricks-and-mortar. The best deals around usually are not at bricks-and-mortar banks, and especially not large banks, although these institutions do intermittently offer special rates on CDs and savings accounts. The best interest rates are most often offered by institutions that operate on the internet, said Ken Tumin, founder and editor of DepositAccounts.com.
These ebanks may have unusual names, but as FDIC-insured institutions, your money will be safe up to $250,000.
The savings accounts offered by some internet banks are currently six times higher than the 0.185 percent banks are offering on average, Tumin said. Dollar Savings Direct has been one of the highest recently with a 1.4 percent interest rate on savings accounts.
Interest rates have been drifting upward for about six months as banks and credit unions anticipate more rate increases by the Federal Reserve, said Greg McBride, senior vice president and chief financial analyst of Bankrate.com.
Internet banks are often the quickest to adjust their rates in anticipation of Federal Reserve moves because online customers can easily transfer their money from one institution to another, while bricks-and-mortar bank customers tend to remain on autopilot, Tumin said. Internet banks also don’t incur costs such as rent and bank tellers.
•Keep an eye on constantly fluctuating rates. The interest rates you see online today may not be there in a few days or months.
As they try to attract customers, banks may offer high interest rates for awhile, and then lower them. New customers might be treated to specials, while existing customers are not, Tumin said. For example, about a year ago, iGO Banking was offering a 1.25 percent interest rate, and then about 12 months later a 0.15 percent rate, he said. That means customers who moved funds to the bank for the 1.25 percent rate eventually ended up collecting a much lower interest rate, Tumin said.
He suggests that savers check their accounts at least once a year to make sure they’re paying what you think they are.
Also, when hunting for the best interest rates, note rules about maximum and minimum deposits. CIT Bank, for example, is paying 1.3 percent, but only on a maximum of $100,000. GS Bank is paying 1.2 percent, but that’s limited to new customers with less than $250,000.
When you’re dealing with an internet bank, make sure your savings account with that ebank can be linked to your checking account at a traditional bank, and that money can be transferred between the accounts free of charge.
•Weigh savings accounts against CDs. If you need to be able to reach your money at any time, savings accounts are your best bet because many CDs penalize you if you withdraw the money before it’s matured. And banks are making penalties for withdrawing money early more stringent, Tumin said. In the past you might have lost three or six months of interest if you withdrew money early from a CD. Now, it’s becoming more common to lose a year of interest.
With many internet banks offering more than 1 percent interest on savings accounts, the accounts can be a better deal than many one-year CDs. To be sure, there are some attractive rates to be had on CDs — such as the 1.7 percent being offered on a one-year CD with a $25,000 minimum at Crestmark — but the average one-year CD now pays just 0.56 percent, Tumin said.
Savings accounts also have the benefit of flexibility. If you are in a savings account and rates become more alluring elsewhere, you will have the freedom to move your money.
•Hire a shopper. For people with a lot of money and little interest in shopping for the best rates, www.MaxMyInterest.com provides a solution.
The site looks for the best rates offered by major institutions and moves your money to the highest paying entities regularly. Since FDIC insurance applies to only $250,000 at a single bank, if you have large sums to invest, MaxMyInterest will divide your money so only $250,000 goes into a single institution. There is an annual fee of 0.08 percent for the service, but recently customers were earning about 1.14 percent after fees.
Gail MarksJarvis is a personal finance columnist for the Chicago Tribune and author of “Saving for Retirement Without Living Like a Pauper or Winning the Lottery.” Email her at firstname.lastname@example.org.