How millions could quardruple their income
January 22, 2013
That kind of title may sound too sensational to be true, but it is a simple fact of today's banking world: Most people are settling for a quarter (or less) of the income they could be getting from their bank accounts.
Recent years have seen bank rates dwindle to almost nothing, and that makes it especially important that you get the most possible out of your bank accounts. MoneyRates.com regularly studies the market for deposit rates and has found that most bank customers could be earning at least four times the income they are currently getting on their deposits.
The near-disappearance of deposit income
According to Federal Reserve data, just before the Great Recession you could get a 5.07 percent annual interest rate from the average short-term CD. It's a very different world now. By the end of 2012, the same type of CD was paying an average of just 0.19 percent.
In dollar terms, that near-disappearance of bank rates has had a devastating impact on anyone dependent on interest income. A $100,000 CD that would have yielded more than $5,000 in annual income before the Great Recession would produce just $190 now.
Making the right choices about bank products won't reverse that dramatic drop in interest income, but it can help you make up for at least some of what's been lost.
Making the best of today's interest rates
The fourth-quarter MoneyRates.com America's Best Rates survey found that savings account rates averaged just 0.17 percent in the last three months of 2012. Since savings account rates were even lower on average at large banks, it's fair to assume that most of the money in U.S. savings accounts is earning no better than that 0.17 percent. This would produce just $170 in annual income on a $100,000 deposit.
However, that same MoneyRates.com survey found a handful of savings accounts paying 0.75 percent or better. That would produce $750 in annual income. That's more than four times the amount produced by the average savings account. None of these interest rates may seem spectacular in dollar terms, but at the end of the year, which would you rather have: $170 or $750?
Tips for getting the most out of your bank
How can you find substantially higher bank rates? Here are some tips on how to do so -- and also on how to save money by cutting checking account fees:
- Compare rates regularly. There are thousands of FDIC-insured banks out there, so the market for interest rates is changing all the time. Use an informational website like MoneyRates.com to regularly monitor what types of deals are being offered on CD, savings and money market rates, so you can be sure your bank is still competitive.
- Consider an online bank. Because of their more efficient cost structures, online banks are often able to offer customers higher interest rates on their deposits.
- Don't be afraid to ask for a better deal. Sometimes, just asking can prompt your bank to find special deals that you qualify for, or steer you toward products that are better suited to your situation. In particular, if you have a large amount on deposit at a bank, you should check to see if that qualifies you for special treatment.
- Opt out of overdraft protection. At around $30 a pop, overdraft fees are very expensive. Opting out of overdraft protection will force you to follow more responsible banking habits, and could save you a great deal of money in the long run.
- Find a checking account with no monthly fee. Free checking accounts may be in the minority these days, but they are still out there. Monthly maintenance fees can take a serious bite out of your account balance, so try to find a bank that doesn't charge them.
The bottom line is that millions of Americans have the opportunity to quadruple their savings account income. Will you be one of those who takes advantage of that opportunity?