Last post, I told you I hold my primary savings account with Ally.
Ally is an internet bank (just like Schwab).
Prior to Ally, I held a savings account at Bank of America. In the many years I held the account, I looked at the balance and thought, “Why isn’t my money growing?” I went to Bank of America’s website and saw that I was being given an interest rate of 0.05%. That is less than one-tenth of a percent. That is tiny.
I did some searching on the internet and was surprised to see that other banks were offering around 2% (back in 2010). That’s 40 times greater!
Here’s how I went about picking Ally.
In my search for my primary savings account, my two main concerns were a high interest rate and convenience. I started my search at bankrate.com. Here are the results sorted by APY (the interest rate).
Let’s examine some of the top banks offering the highest interest rates.
One trap you should look out for is the introductory interest rate. Everbank is listed as having an introductory interest rate of 1.05% for the first 6 months and a post introductory rate of 0.76%.
Also, beware of monthly fees and balance requirements. There are plenty of savings accounts that have neither, and you should pick from those.
The bank at the top of the list, CIT bank, requires $25,000 to open.
One important note on the interest rates these banks pay is that the rate changes all the time. Back in 2010, when I was doing my own search, interest rates were near 2%. Internet users on personal finance forums were complaining that interest rates used to be around 4%. Now, they are at or below 1%. It is possible this interest rate could go lower or higher closer to the highs of 4% depending on the health of our economy.
I waited a couple months and kept my eyes on these few banks. After reading many reviews, it seemed like Ally and ING Direct were two of the most popular internet banks. Going with banks the lesser known internet bank, I took comfort in knowing of those who chose to bank at internet banks had good experiences with Ally and ING Direct. The two banks are comparable in features, but Ally seemed to consistently offer higher interest rates. When interest rates on savings accounts across all banks fell, Ally always seemed to be at or near the top.
Taking a look at where Ally stands now among its competitors, I don’t mind that Ally is not sitting at the very top of the bank rate search sorted on interest rate. I don’t want to be constantly moving my money around to the bank that offers the highest interest rate. Ally offers 0.84% and at a quick glance it seems like Barclays offers a reasonable 1% interest rate. A 0.16% difference in interest rate is not enough for me to switch banks.
It’s a good idea to see where your savings account stands maybe once a year. If you notice that there is a bank that consistently offers a better deal year after year, consider switching banks then.
- No minimum deposit to open
- No monthly fees
- Competitive interest rate
- 6 Monthly withdrawals
- Mobile banking (via smartphone)
- FDIC Insured
Make sure that whatever bank you choose is FDIC insured. FDIC insurance guarantees all deposits up to $250,000, so you never have to worry about your money disappearing at a bank that may not be as well known as a Bank of America or Chase.
Once you filter out the bad choices for savings account, you should look for the highest interest rate. Savings accounts are a bit simpler than checking accounts because you don’t have to do anything to earn the interest. Therefore, you have some more flexibility in choosing a bank.
Later, I will talk about how you should think about budgeting, as well as how you can create sub-accounts automate your personal finances a bit and make your life easier. If you make a salary, you can have the bank automatically divide your paycheck up so that some is automatically put away and the rest is for you to carelessly spend.
Let me know if you have any questions or feedback in the comments!