Maximize interest in your checking and savings accounts
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Online Banking and Interest Rates
Life Impact: 2/7
Confidence in Recommendation: 7/7
Maximizing interest in checking and savings accounts can generate hundreds of dollars per year or more in extra earnings. Major banks typically pay no interest in checking accounts and below 0.10% in savings accounts. In addition, accounts are usually subject to various fees and minimums. Online banks are able to offer significantly higher interest and minimize fees because they do not need to maintain physical branches and thus have lower expenses than traditional banks.
The U.S. interest rate affects all interest rates in the economy, including those provided by savings account. The term "U.S. interest rate" usually refers to the "federal funds rate," which is the safest and shortest-term interest rate in the United States. The federal funds rate is the interest rate that banks charge each other for overnight deposits. It is set by the Federal Reserve, which is the U.S. central bank. The federal funds rate influences all other interest rates because banks will always make riskier or longer-term loans at a rate that is higher than shortest and least risky interest rate, otherwise they would be better off not making the loan. Raising the federal funds rate typically raises other interest rates in the economy, and lowering the federal funds rate typically lowers other interest rates in the economy. The U.S. interest rate is currently 2.5% as of July 2019.
We anticipate that the highest savings account yields will approach but not equal the federal funds rate because banks pay a lower interest rate to savings account holders and then can lend the money out at the federal funds rate or higher to generate a profit. Right now, the highest consumer savings account rates are around 2.25%.
Recommendation
Checking and Savings Recommendations
SoFi Money is our top recommendation for checking and savings accounts. SoFi is a multibillion-dollar fintech company founded in 2011 with four major product lines: loans, insurance, investing, and banking. As of July 2019, it offers the best cash account by far. SoFi Money is a hybrid checking and savings account. That essentially means that it operates like a checking account with no limits on transactions or spending but offers the interest rate of a savings account.
SoFi Money offers a 2.25% yield on a checking account which is nearly unheard of outside of small banks that offer high-yield checking accounts that may have restrictions on who can open an account or requirements that need to be met in order to keep the interest rate. SoFi money has essentially no minimums, maximums, or fees, and there are no requirements to get the 2.25% interest rate. In February 2019, SoFi Money removed direct deposit and spending requirements that used to be necessary to get a 2.25% interest rate instead of lower interest rate.
It is not possible to make cash deposits into a SoFi Money account or to send wire transfers. See this article for more coverage on the benefits and limitations of a SoFi Money account. For readers that do not need niche benefits of a traditional checking account, we recommend fully switching to SoFi Money. For readers that may need traditional baking services, we recommend maintaining an account at a traditional bank with the minimum amount of money needed to avoid fees, which is usually $1,500. For readers that would like to fully maximize their interest rate, we recommend WealthFront's cash account which yields a 2.57% rate of interest.
Readers that wish to support Live Expertly can sign up for a SoFi Money account with our team member William's referral code, which credits new accounts with $50 after $100 is deposited: https://www.sofi.com/share/money/2573805/.
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