The Morality of High Interest Savings Accounts
May 06, 2010
Arianna Huffington wants everyone to move their savings accounts, money market accounts, and CDs from big banks to a local community banks. Ms. Huffington feels that the big banks mistreat the deposits they receive--and come to think of it, many savers may see the logic of Huffington's position.
As consumers may have noticed, big banks like Bank of America and Chase are not listed as paying the highest interest on checking accounts. Smaller community banks frequently do appear on such lists as paying higher interest on checking accounts, savings accounts, and money market accounts.
Higher Interest Savings Accounts and Populist Anger
Huffington's argument is simple and based in populist anger. According to Huffington--who relies on data from the Federal Reserve--the big banks received hundreds of billions in bailout funds, and still cut business lending by $100 billion in 2009. However, if banks cannot rely upon businesses to pay back these loans because the business environment is terrible, should banks still lend out that money? Are banks under moral obligation to lend money?
Two Caveats to Small Bank Banking
Savers who find higher interest savings accounts at a small bank and migrate in that direction must think about two things:
- FDIC insurance
- bank fees
Regarding the first point, some smaller banks are in trouble these days, and that $250,000 FDIC limit could come in handy someday. Secondly, big banks have ATMs everywhere, smaller banks don't. Fees may ensue if consumers make numerous transactions on their accounts.
In the end, philosophical arguments can go on all day. What's more interesting to most savers, though, rather than arguing, is getting the best interest rates on high yield savings accounts--which may mean moving their accounts to smaller, local banks.
