If you’re anything like me, you want to make all of the right decisions with your money in order to earn passive income and reach financial freedom. That’s exactly why I spent hours looking at various online banks to determine what the best savings account is. Read on to see what factors to look for when choosing the best savings account for your needs.
*Disclaimer: Some of the links in this post are affiliate links. This means if you click on the link and purchase the item, I will receive an affiliate commission at no extra cost to you. All opinions remain my own. Read more about it here.
Picking The Best Savings Account
If you are currently using a savings account with an excessively low interest rate, you need to stop immediately. You are LOSING money.
The average interest rate for savings accounts?
At 0.09%, your money is sitting stagnant. Yes, it’s safe and you aren’t going to lose any money by keeping it here, but your money is actually losing value. How?
The average annual inflation rate is 3.22%!! That means while your money is sitting in a savings account earning a measly 0.09% interest rate, everything else is getting more expensive!
So while you’re not technically “losing money”, you’re missing out on the opportunity to hold your savings in a higher-interest account that can at least keep up with inflation.
Traditional bank institutions tend to have savings accounts with low interest rates, such as Bank of America (0.03%), Chase (0.01%), or US Bank (0.01%). Please check the interest rate on your savings account ASAP, generally you shouldn’t settle for anything under 1.5% interest.
Open a High-Yield Savings Account
I know what you may be thinking. What’s the catch?
Why would some major banks have an interest rate of 0.01%, and some have an interest rate of over 1.5% for the same type of account?
The main difference is that high-interest savings accounts primarily come from online banks. Online banks (sometimes referred to as ‘Direct Banks’) have fewer expenses compared to a typical brick-and-mortar bank as they don’t have any physical locations, and they have far fewer staffing requirements.
With lower expenses, online banks are able to offer savings accounts with higher interest rates!
What should these savings accounts be used for?
These savings account can be used for:
- Emergency Funds
- Short-Medium Term Savings (1-5 Years)
- You want to protect your money.
You generally do NOT want to use a savings account for:
- Building wealth
- Saving for retirement
- General Long-Term Savings
It is not advised to use a savings account for those reasons since investing your money will earn you far better returns.
But if you are going to use a savings account, you should do it right:
My recommendation is to use CIT Bank’s Savings Builder.
Personally, I hold my emergency fund in the Savings Builder account, and have been very happy with it so far!
For contrast, my previous savings account only offered a 0.20% interest rate, and compounds quarterly. This isn’t terrible for a brick-and-mortar bank, and certainly beats a 0.09% yield.
Then I switched to CIT Bank.
I’m now earning 1.75% APY (Annual Percentage Yield), which compounds monthly. This is a massive difference, and comes with pretty much no fee’s.
The only fee that is charged is a $10 outgoing wire transfer fee for account balances under $25k, but other than that there are no fees at all.
How big of a difference is the interest rate?
Hypothetically if I had $10,000 sitting my emergency fund, here is an estimation of how much I would have in my account after 1 year in each account from interest alone:
- 0.09% Interest: $10,009
- 0.20% Interest: $10,020
- 1.75% Interest: $10,177
Pretty huge difference in the final amounts. Now how much would it be if we let that $10k sit for 5 years?
- 0.09% Interest: $10,045
- 0.20% Interest: $10,101
- 1.75% Interest: $10,914
As you can see, even after 5 years, the 0.20% interest savings account didn’t even earn as much as the 1.75% interest did in 1 one year!
You just earned $900 in interest over 5 years in your emergency fund. Those returns definitely make it worth transferring to CIT Bank’s Savings Builder.
Benefits and Drawbacks of CIT Bank
Here are some things that make CIT Bank one of the best savings account options out there:
- Little to no fees, particularly no minimum balance requirement.
- While it takes $100 to open the account, there’s no required minimum balance to keep your account open.
- CIT Bank is FDIC insured up to $250,000.
- Easy-to-use mobile app and online interface.
- 24/7 customer support online.
- CIT Bank is a reliable online bank.
- Interest rate is over 19 times the national average.
Here are some drawbacks of using CIT Bank:
- In order to maintain the 1.75% APY, you are required to either deposit at least $100 a month, or maintain a balance of $25,000. Otherwise your interest rate drops to 0.995%.
- CIT Bank does not offer ATM access, however this is common across many online banks.
- Transfers can sometimes take awhile.
- The interest rate is subject to change month to month, which is true of any savings account. This is something to be aware of before opening an account anywhere.
What Convinced Me To Switch?
Whenever I first heard about CIT Bank, I wasn’t super familiar with online banks. I had accounts opened with Bank of America and a local credit union, both of which had terrible interest rates for their savings accounts.
I knew I shouldn’t settle for those rates when there were much better options out there. My goal was to find the best savings account out there.
I was on the fence about opening a savings account with an online bank that I’ve never heard of before. But as I did more research, I started seeing CIT Bank consistently on every source I looked at.
It came across as one of the most reliable online banks I saw considering it was recommended by many people, and it had a very competitive interest rate.
The idea of no fees at all and no minimum balance also made it an attractive option for me.
I’m primarily using it as an emergency fund, so in the event of an emergency I would need to withdraw my funds out of the account. If my savings account had a minimum balance requirement, I would be subject to paying fees if I go under the minimum balance.
This was a major factor in my search for a savings account.
So as a result of all of it’s benefits, I went with CIT Bank!
I’ve been using it for about 6 months now and haven’t had any problems with it, and the interest that I’m earning monthly makes a very noticeable difference compared to what I had with my previous savings account.
So if you’re looking to start having your savings account work for you, I highly recommend ditching the 0.09% interest rate to start earning with CIT Bank’s Savings Builder!
Don’t hesitate to start earning a better interest rate. The sooner you switch, the sooner your money can start to compound.
If you want to learn more about me and my journey, read about me here.
If you have any questions about my experience with CIT Bank, let me know in the comments below!