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America's Best Rates: Online banks winning the bank rates war

Richard Barrington

The world of bank deposit rates has been quiet in recent years, with rates low and barely changing. Suddenly though, that seems to have changed.

According to the America's Best Rates survey by MoneyRates.com, average savings account rates and money market rates rose for the second consecutive survey during the third quarter of 2017, and this time by an even wider margin than in the previous quarter. The real action is at the top of the charts, where a good old-fashioned rate war has broken out among several banks who are trying to outdo each other by offering customers higher interest rates.

Who is winning that rate war? The America's Best Rates survey can show you which banks are coming out ahead, but the real potential win is for consumers. However, even as rates rise, some consumers will miss out if they remain stuck with the wrong bank.

Who's winning the bank rates war?

The tables in the section that follow will show you which specific banks are winning the rate war, based on the leading savings and money market rates in the latest America's Best Rates survey. However, there are some broader trends that characterize who is winning or losing.

1. Online accounts are beating traditional accounts

Online accounts, with their cost advantages over traditional branch-based accounts, have long offered higher savings and money market rates, and the gap widened in the third quarter of 2017. While the average rates on traditional savings and money market accounts barely moved during the quarter, the average rates on each type of online account made more significant gains.

In fact, the vast majority of accounts that seem to be engaged in a race are online accounts. This makes sense - not only do these accounts enjoy a cost advantage over traditional accounts, but the ease of comparing rates online means consumers are more likely to take advantage of higher rates via online banking than by going from branch to branch.

The bottom line is that for every $1 the average traditional savings account pays in interest, the average online savings account pays $9.35. With money market accounts, the advantage for online customers is $5.42 for every $1. Online accounts are not just winning the rate war, they are dominating it.

2. Small banks are beating larger banks

Though not as dramatic as the difference between online and traditional accounts, small banks in general seem to be doing more for their deposit customers.

For every $1 in interest the average savings account pays at a large bank (those with $15 billion or more in deposits), the average savings account at a small bank (those with $5 billion or less) pays $1.62. Among money market accounts, the average account at a small bank pays $1.42 for every $1 earned at the average large bank.

3. Savings account rates are beating money market rates

The advantages for online accounts and small banks were greater for savings accounts than for money market accounts, and this is reflective of a trend that has savings accounts generally enjoying a rate advantage over money market accounts. While the very top rates in each category are similar, on average, savings accounts pay $1.18 in interest for every $1 earned in a money market account.

Of course, the real win in these rate differentials and in rising deposit rates in general is for consumers. Unfortunately though, while some consumers benefit, others are being left behind because the gap between the top and the bottom banks in the survey is widening.

The scale of this gap is pretty staggering when you think of it in dollar terms. During the third quarter, a customer with the top-paying savings account would have earned $129.57 for every $1 earned in one of the lowest-paying accounts. Clearly, there is a huge price to be paid for sticking with an under-performing bank.

Best savings accounts by rate

A year ago, the top savings account rate in this survey was 1.10 percent. In the latest survey, that would not even have cracked the top 10. As evidence of the sudden competitiveness among the leading banks, every savings account in the top 10 raised its annual interest rate by more than 0.10 percent in the third quarter alone. The rate war is on!

Bank

Recognitions

Q3 ’17 Avg Savings Rate (APY)

1st place

Salem Five Direct

ABR platinum medal winner

1.30%

2nd place

CIT Bank

ABR gold medal winner

1.28%

3rd place 

SFGI Direct

ABR silver medal winner

1.22%

4th place

Synchrony Bank

ABR bronze medal winner

1.20%

5th place 

Goldman Sachs Bank USA (GS Bank)

1.20%

6th place

Barclays Bank

1.19%

7th place

Ally Bank

1.16%

8th place

Radius Bank

1.14%

9th place

American Express Bank, FSB

1.13%

10th place

Discover Bank

1.12%

Unfortunately, not all banks are participating in this rate war. For one thing, it is almost entirely an online phenomenon - nine out of the top 10 above are online accounts. Another thing is many institutions are stubbornly refusing to budge on bank rates. While several banks now offer savings account rates in excess of 1.00 percent, an even greater number still pay rates of just 0.01 percent.

Best money market accounts by rate

When it comes to money market accounts, the rate war has fewer participants than with savings accounts, with only four money market accounts in the survey offering rates in excess of 1.00 percent. Here are the top 10:

Bank

Recognitions

Q3 ’17 Avg Money Market Rate

1st place 

Able Banking

ABR platinum medal winner

1.30%

2nd place

Sallie Mae Bank

ABR gold medal winner

1.28%

3rd place

BBVA Compass

ABR silver medal winner

1.24%

4th place 

Capital One 360

ABR bronze medal winner

1.13%

5th place

Discover Bank

0.96%

6th place 

First Internet Bank

0.90%

7th place

Ally Bank

0.86%

8th place

Synchrony Bank

0.85%

9th place

EverBank

0.85%

10th place

Mutual of Omaha Bank

0.77%

As with savings accounts, not all money market accounts are participating in the rate war. Eight of the top 10 money market rates are offered by online accounts. Overall, there are still more accounts offering just 0.01 percent interest than there are accounts offering 1.00 percent or more.

The nice thing about the rate war among banks is that consumers get to choose a side. Just be advised that with many of the lowest-paying accounts being offered by large, branch-based banks, those consumers who don't bother to make an active choice will probably end up on the losing side.

Here are leading offers from other online banks

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Currently Banking With:

  • Capital One 360
  • Barclays
  • Synchrony Bank
  • Ally Bank
  • CIT Bank
  • HSBC
  • Sallie Mae Bank
  • American Express Bank, FSB
  • Discover Bank
  • Other

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