The accumulation of money is largely due to the pandemic, which has done people are wary of their health and finances and have retained many of their usual spending habits, said Ken Tumin, a banking expert at DepositAccounts.com, a bank account comparison site.
Here’s what to keep in mind when looking for a place to store your emergency savings.
Traditional savings accounts
That’s not much of a return. But for many savers in this ultra-low environment, the benefit that traditional savings accounts offer is convenience.
Although both traditional and online savings accounts are FDIC insured, the availability of branches in traditional banks makes it easier to do things like cash – something that is harder to do with online savings accounts.
But large banks tend to charge higher monthly fees.
And those fees can be added, said Stephen Chow, a certified financial planner at Know Your Worth Financial in Tempe, Arizona.
“The interest rate difference in this environment will not exceed the cost of a few fees,” Chow said.
Online savings accounts
“They are FDIC insured and you can keep your existing check account,” he said.
“Prices are over 1% now, but rates on online savings accounts are falling,” Tumin said. “I wouldn’t be surprised if they fall to 1%.”
At 1%, if you deposit $ 10,000, this is the difference between the profit of $ 100 per year if the exchange rate remains unchanged in online banking against $ 1 at the end of the year from a traditional savings account offering 0.01%.
“It’s not a great return, but it’s better than nothing for funds that need to remain liquid for any needs that may arise,” said Ryan Watermiller, a certified financial planner at Ankeny Financial Planning in Iowa.
Just be sure to read the fine print: Some online accounts charge a fee if you have not made a deposit or withdrawal within a certain number of months or if the balance falls below a certain amount. And there are some accounts that function as a certificate of deposit, charging a penalty for closing the account before a certain period of time.
Alternatives to savings accounts
CDs: Another safe place to deposit your money is a certificate of deposit or CD. It is similar to a savings account because it is federally insured, but you agree to leave your money there for a period of time, such as six months, a year, five years or even longer. You usually earn more interest the longer your money is deposited.
But, as with savings accounts, the interest is not much.
“Because the frequency of CDs has dropped so much, it’s not a good time to lock up right now,” Tumin said. “There are already several online banks that are reducing the levels of their 5-year CDs so low that they are lower than their savings account rates.”
But, he said, if you already have a CD ladder in which mature CDs are transferred to new CDs, stick to it.
However, before you automatically roll over with your current bank, shop, he said.
“Even online banks are reducing CD rates for all time, but not for all, he said. – Your bank may be the one that lowers interest rates and you may get a better interest rate elsewhere. Look around. You don’t want to conclude with a very low percentage if you can find something better. “
Money market accounts: Money market accounts, which typically earn higher percentages than savings accounts, may allow checking or debit cards and may require a higher minimum deposit.
But there may be some fees. Some money market accounts may have monthly fees, fees for inactive accounts or other fees for non-compliance with the bank’s specifications.
Checking high-yield accounts: High-yield checks, sometimes called remuneration checks, are usually offered by community banks or credit unions and offer rewards for meeting specific account requirements.
Most have no fees, but you must meet the requirements to earn a high interest rate.
“Checking payroll accounts can at least provide a way to earn some interest right now in an environment where rates are low and will remain low for a while,” Tumin said.