You Might Be Shocked How Much More Online Savings Accounts Pay — Even After the Fed’s Rate Cuts

The Federal Reserve has cut interest rates twice in the past few months. This has caused the interest rates paid for savings accounts, CDs, and money market accounts to fall. However, you need to keep a couple of things in mind. First, interest rates are still rather high. The Fed’s cuts lowered the federal funds rate by a total of three-fourths of a percentage point (0.75%), but the benchmark interest rate still sits well above the peak of the previous rate hike cycle. And second, you might be surprised at the interest rates that online savings accounts are paying right now, especially if you’re used to banking at a brick-and-mortar financial institution.

Online savings accounts versus the national average

According to FDIC data, the average savings account interest rate in the United States is 0.45%. On money market accounts, the national average is 0.61%, and even when it comes to a 1-year CD, the average is 1.81%. Meanwhile, some high-yield savings accounts offered by primarily online banks offer yields of nearly 10 times the national average. And despite what you might assume about online banking, many of these are offered by institutions you likely know and trust. For example, the Capital One 360 Performance Savings account has a 4.00% APY. There are other great examples, and you might be able to find an even higher yield, especially if you tend to keep a relatively high savings balance. For example, the LendingClub LevelUp Savings account offers a best-in-class 5.00% APY with $250+ in monthly deposits.

It isn’t just about the yield

To be clear, the massive difference in interest rates is the biggest reason to switch from a brick-and-mortar savings account to one offered by a top online bank. For example, virtually every online savings account doesn’t have any monthly account fees. Brick-and-mortar banks usually give account holders a way to avoid fees (such as by maintaining a certain balance), but with an online savings account, you don’t have to worry about it. Plus, some accounts have other perks. Not all of these apply to all online savings accounts, but here are some things you might be able to find:

• 24/7 customer support
• Easy-to-use banking apps
• Some (like Capital One) have physical locations in some areas
• Unlimited (and free) external transfers
• ATM access at tens of thousands of locations
• ATM fee reimbursement at non-network ATMs

The bottom line is that if you still use a brick-and-mortar bank for your savings, it could still be a great time to make the switch to online banking — even after the Fed’s rate cuts. And it’s important to keep in mind that even if the Fed continues to cut rates over the next year or two, as is widely expected, online savings accounts are still likely to pay several times the national average savings interest rate. This was the case even when the Fed was holding interest rates at near-zero levels, and there’s no reason to expect this will change.