An American Tradition

The bank savings account has been a traditional means of establishing financial security. The most practiced method of building personal finances includes depositing funds not needed for monthly expenses into a savings account. Payroll deductions became a popular method for painlessly putting away a set amount each payday; one could build a nest egg, and a shelter from any future emergency. Savings account interest rates were a key part of the approach; they assured compounding and passive income. One key measure of economic stability is the percentage of disposable income that Americans place into savings accounts, and those savings rates were a reflection of economic strength.

The Low Interest Trend Continues

Throughout 2013, interest rates hovered around the one percent range, and that trend appears to continue in 2014. The driving force is the 10-year Treasury benchmark, which projects in the 3.5 to 4.0 percent range. This benchmark note puts downward pressure on shorter-term rates. The net result favors long-term positions and works against increases in short-term interest rates, which currently offer approximately one percent. The trend in interest rates is relatively flat.

A Wide Range Of Choices

Banks offer consumers many choices for savings accounts. Banks combine savings accounts with other services or items, known as perks or features, such as free checks and easy online management of funds. Federal law limits the number of permitted withdrawals to six per month, but the ease of remote banking would likely cover that limitation. Banks offer linked checking and savings accounts that provide constant access to funds by phone, by online access, or at automated teller machines.

Online Bank Accounts

Some online banks offer higher interest rates and fewer restrictions than brick-and-mortar institutions. This noteworthy pattern continues in online bank savings account interest as it has in CDs, and other bank instruments. Many online bank savings rates equal the CD rates at traditional banks. The top three online interest rates are 0.87 percent at Ally Bank, 0.95 percent at Synchrony Bank – Optimizer+plus High Yield Savings, and 0.95 percent at CIT Bank – CIT Savings, with a $25,000 minimum deposit. Many traditional banks offer lower rates for one-year certificates of deposit than do savings accounts at these online institutions.

Some Alternatives To Savings Accounts

Some consumers consider savings account interest rates are too low, or inadequate to meet their goals. There are alternatives that one should consider instead of traditional or online bank savings accounts. Two no-risk alternatives are high-yield checking accounts and certificates of deposit. Common features of high-yield checking accounts are minimum deposits and maintenance of a minimum balance. Certificates of deposit have fixed terms and penalties for early withdrawal of funds. Thus, getting higher interest rates would require acceptance of restrictions or a commitment to a term of an investment.

Greater Risks And Higher Potential Rewards

Money market mutual funds and similar investments can offer higher potential yields than savings accounts; however, and one must be prepared to risk loss of principle. Banks do not guarantee these accounts against loss in the event that the stock or bond markets move downward. Investors who place a priority on security and constant access to funds must search the market to find the best FDIC insured savings or checking account rates.

Long term vs. Short-term rates
Federal Regulation D- Transaction Limits