Bank accounts keep getting better and better. Well, some of them at least: Bolstered in part by the Federal Reserve’s plan to steadily raise interest rates, consumers at online banks, in particular, are starting to see more generous returns on their savings accounts. As that happens, the difference between bank accounts that pay and those that don’t is getting bigger.
“If you look at online banks, it’s pretty easy for consumers to find 1.5% [APR] or, in some cases, even higher,” said Kimberly Palmer, a banking analyst at NerdWallet. “In some cases at traditional banks, you’re still seeing interest rates as low as .1%, so people can really lose out on the higher savings.”
While we’re a long way away from the days when savers could earn 4% annually or simply by not spending their money, the potential benefits for savers are still substantial.
A customer who saves $5,000 with a high interest account through an online bank can make about $800 in interest over 10 years, according to NerdWallet’s latest analysis. But a customer who saves the same amount through the average savings account at a big bank like Citibank of Bank of America is losing out on more than $800 within 10 years.
The gap is even higher when you look at other savings vehicles like a certificate of deposit — essentially savings accounts where you agree to avoid touching your money for a given period of time in exchange for a better rate. A person who saves $15,000 in a CD for 15 years, for example, loses out on more than $4,000 compared to what they would have earned in the average low-interest savings account, NerdWallet found.