What is a Good Interest Rate on a Savings Account?

A “good” interest rate on a savings account is one which exceeds inflation and provides the terms and conditions the customer wants. That would be the definition in a perfect world.

Currently, no financial institution, online or brick-and-mortar, which offers savings accounts pays interest rates higher than the rate of inflation as measured by the government CPI-U. No one expects that to change in the near future. Currently, the highest interest rate stands at about one percent, with most below that.

In addition, the bundle of terms and conditions varies greatly among banks. The customer will have to research options. At the end of that comparison shopping, customers may wind up finding that a “good” rate for them might not be the highest rate available or even one of the higher rates. That’s because the provisions which go along with those rates don’t sit well with the customer. Those could include a certain minimum deposit, maintaining a high balance or paying a penalty and monthly fees.

The good news is that the data about what banks offer what rates can be found on the Internet. Simply key in on a search engine the phrase “best interest rates for savings accounts.” One source is MoneyRates.com. Its edge is that it lists both online and brick-and-mortar financial institutions.

There has been the assumption that online banks have the highest rates. That’s because they can afford to since they don’t bear the burden of real estate and in-person manpower costs. That might still be true. However, now there are state and national brick-and-mortar banks whose average interest rates range between 0.68% and 74%. Some consumers might prefer banking in the traditional way. For example, they can go into the bank and deposit cash or checks. Online banks usually only allow online transfers from another account and require direct deposit of funds. Checks and cash can only be sent in by snail mail or, in the case of a check, scanning it with a smartphone or mobile app.

But some online banks have been making it easier to maintain a savings account with them. They might, for instance, reimburse the fee for the use of any bank’s ATM. That means their depositors have convenient, immediate access to their money. There may be limits on the number of withdrawals in a month. But many traditional banks have that same requirement.

Savings accounts in reputable financial institutions function as a safe place to put money which will probably not be needed in the short term. Meanwhile the funds will earn a little interest. However, more interest could be earned in a Certificate of Deposit (CD). That would be appropriate if customers feel confident that they need not tap into those funds for a definite time period. Another option would be to use some or all of the money which would have been deposited in savings to pay off high-interest debt such as credit-card balances and non-federal student loans.

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