Opening for Online Alternative as Bank Deposit Rates Stay Near Zero

Apr 13, 2018 · 55 comments
Walter (Ferndale, WA)
It is unlikely the savings rate will increase. Fractional reserve banking is the reason. A bank only has to keep a fraction in reserve, depending on its deposits. For most banks in the US, this will be 10%. This does not mean it can lend out the other 90%. Oh no! This means it can generate loans 10 times the amount of assets. For example, if I have a checking account with $10,000 in it, the amount is added to the bank's reserves. Then the bank can generate loans 10 times as much, or $100,000. If the money in my checking account is part of a mortgage at 4%, the bank earns $4000 a year, or over $10 a day. Quite the scam - and entirely legal. Do you really think any bank will increase the savings rate on its own? Hah!
John Drake (The Village)
It seems like a plausible idea, but where's the other half of the article that explains whether our deposits are safe in online banks and how to pick a reliable one?
New World (NYC)
The on line banks will at least give you something. I spit on the entire system. I think I’m getting like 1.5% from Ally now but it’s still disgraceful. I’m neck n neck with inflation. Damn fed keeps interest rates artificially low to help out the economy but if your a saver, fogetaboutit. Anyway some countries (Japan, Switzerland) are if freakin negative rates. You gotta pay ‘em to hold your money. Ain’t like the old days when the Dime Savings Bank of Brooklyn would pay you 5%.
Jim B. (Ashland, MA)
The best way to beat banks at their own game is to take advantage of their credit card pitches when they offer 12months of interest free money checks drawn on a credit care. I cash the check and leave it in my savings - getting nearly no interest - but free checking service for the 12 months. then I pay it back on the day it's due. I also, don't use that credit card for the full 12 months (that's probably why they sent me the free interest offer in the first place). So, though it's not much, it's something. and the bank loses all the fees it might have collected had I been using the credit card.
Jim (Westborough, MA)
It's worse. Massachusetts has a law that mortgagors (banks holding mortgages) must pay interest on escrow accounts. The law does not specify how much. What is my current escrow interest rate? 00.01%. The optimist in me hopes that we learned from the events leading to the great recession to not be evil. The pessimist in me knows this is not true.
Jeff Parke (Seattle, WA)
I moved money I'd put in a CD or online bank to a term deposit in New Zealand 2 years ago. Earned 3.6%. Now living here in NZ, and various term deposits or some regular savings accounts with Bank of New Zealand earn 2.5 to 3.7%. I asked a banker here how they did it. Explanation that they charge 4.5-4.8% to loan money meant they could pay depositors a point or so less than that and make good money. Sounds like the US banking I grew up with. US banks are simply ripping us off now for many years. Unbelievable!
mike (west virginia)
I wish the article mentioned how to find good, trustworthy online banks. Several comments have mentioned Ally. Who else is there?
DeWitt Hawthorne Periwinkle (Queens NY)
I have dealt with several online banks for more than 10 years. Today I recommend both Ally Bank and Synchrony Bank for rates, ease of use, and customer service.
son of publicus (eastchester bay.)
Of course in my working class neighborhood there has been an explosion of Brick & Mortar Bank branches. I guess not for deposits, but to be in place when the working class & middleclass americans of all shades will have to cannibalize their homes with reverse mortgages & emergency equity loans just to survive. And of course leaving their children, burdened with obscene college/grad school debt, with no inheritance--the traditional prop of giving them the security of moving up the Pyramid, but instead sliding lower down. Making America Worse Again.
Saggio (NYC)
Quick question--are on line savings accounts FDIC insured?
NYReader (NYS)
Discover Bank is FDIC insured (where I have accounts). The FDIC logo is displayed on their website. I would imagine that other online banks also display the logo too.
Kai (Bay Area)
Yes, most are, just check their websites and FDIC for confirmation. I know Capital One, Ally and Synchronybanks are.
F. Horne (So. Calif.)
For many, Treasury Direct would be better than online banking. Leave your money in your local bank, where it already is, and subscribe as much as you want to Treasury Direct—you have an account with the US Treasury to do this. You’re investing in US notes and bonds, of any maturity you desire, as short as 4-week notes. You get the actual auction price, which means you get the full yield of the security—there is no middle man taking a cut. Look up Treasury Direct-and get the details on how to open an account with the US Treasury.
Ken L (Atlanta)
Thank you for the suggestion on Treasury Direct. It looks like we can invest in 6 mos. T-bills yielding not quite 2% as of now. Much better than the banks.
Kahnotcca (Brooklyn)
I left Bank of America for a mix of a local bank for checking and an online bank for savings and have never looked back. Big banks don’t care about the small guy, as is clear from their unwillingness to give back even a small amount in interest rate increases. Their greed, their lack of a moral compass in their business decisions (such as continued investments in fossil fuel companies), the insanely high charges for withdrawing money at outside ATMs, the greed of some to charge poor clients who can’t maintain a minimum, all while earning money on our money - it’s just gross and a lot of us are over it. There are other options out there and we don’t need the big greedy banks. This millennial says goodbye and good riddance.
Walter (Ferndale, WA)
@Kahnotcca - Yeah, I left a big national bank for a credit union several years ago, but I got tired of the paternalism. I had to go into the local branch to do a travel notice, instead of doing it online. Kinda like asking Daddy's permission. I am back at a big national bank again and I get better service than I ever did at my credit union.
Tom A. (Chicago, IL)
I'm finding some good rates at online banks. I just opened a no-penalty CD yielding 1.85% so I can get my money out at any time without a penalty. You can also use this tool to find good rates across the whole deposit duration curve:
F. Horne (So. Calif.)
Treasury Direct is a better program than on-line banking. Keep your money where it is, but subscribe whatever portion you want to Treasury Direct. You have a choice of maturities, including 4-week , and you get the actual auction price on USA bond and note sales. There is no middle man—you get the actual yield on US government securities. Check it out.
Victor Huff (Utah)
It's pathetic how banks work over the people in America. They continue to prop up their coffers and give back almost nothing. Their stocks go up, their profits go, the bonuses their top executives get go up, all while all they do is try to figure out how to pad their bottom line any way possible. They get caught swindling mainstream America and almost nothing happens. It's ludicrous how little they give back. When the economy crashed and the government stepped in and saved the banks butts they paid back their debts in about a year, it was pretty damn easy for them to come out of their near collapse back into the black.It highlighted just how quickly and much money they really make.
MB (W D.C.)
Good times or bad times, middle and lower classes always take it in the chops. Ain’t America great?
Dan Green (Palm Beach)
Banks are like Vegas. The House always wins.
David (Nevada Desert)
Try Ally Bank, formerly known as GMAC.
Kai (Bay Area)
I like them...easy to deal with, good customer service.
MattNg (NY, NY)
People should be saving, especially since the beginning of this year when we have a six-times bankrupt, so called "great businessman" running our country. How can anyone not be saving as much as they with this great businessman, who has lost almost $3 billion in revenue, who, for every dollar you'd have invested with him over the entire course of his business career, you'd have lost 95 cents on the dollar, running the country? How can anyone feel confident about our economy when the person leading our country couldn't, and probably still cannot, get American banks to loan him money?
stan continople (brooklyn)
If you want to see "collusion", see the remarkable uniformity in interest rate changes among the banks after they hold their "conference calls".
Regarding "after a decade of low interest rates, many banking customers seem almost to have forgotten that they’re supposed to get something in exchange for their money". Just like for privacy, people (especially the young) are trained in the "new normal" and come to accept it.
Gregory Howard (Portland, OR)
I just completed my move from Wells Fargo to Ally Bank. It took almost 3 months to complete (I didn't read all the fine print) but it was worth it. Yes it's weird to have my money in a bank that has no branches, and no, I'm really not thrilled with the wait times when I call for assistance, but my savings account @ Ally earned more interest in a single month than the same money earned @ Wells Fargo in an entire year. Don't be stubborn. The math is simple.
Diane J. McBain (Frazier Park, CA)
I would consider on-line banking, but I don't know how secure it is. It seems a little airy to me. I do like my credit union, which is the only way I bank. The credit union comes through my church family, so I trust it.
Bartolo (Central Virginia)
Diane, I think you will find that credit unions are paying increasing attention to security for those who pay bills online. For example, several kinds of alerts are available which can show when your ID was successfully used and when someone else may have tried to use it. Also, many credit unions and banks are using the so-called two factor authentication where you can receive a phone call or text giving you a unique code to enter along with your password to log on. You can elect to bypass this on your own computer and have it work only with access from another one, as when you are traveling. Although doing online banking when away from home is not recommended. There are also little fobs that plug into a USB port that will send you a unique code to be used as above.
NYReader (NYS)
@ Diane - I have dealt with Vanguard on and off for years with only online accounts, never had a problem. I also opened a savings account with Discover Bank about two years ago, plus I just opened an IRA CD there as well. No problems whatsoever. Great customer service, easy to navigate the website. Transfer of money from my local credit union account to online accounts is very easy to do. If you have any concerns, call the bank and ask some questions, but honestly, the amount of interest that they offer is worth considering an online account.
GR (Philadelphia)
I made the complete switch to online banking in February of this year and haven't looked back. I had an account open at PNC bank since 2009 because it still benefitted me, but then they charged me some crazy one-time fee in January and when I asked them to credit the fee back since I was a long-time customer with a great history, they gave me the run-around. I had already opened an account with Ally bank some time last year, so it felt amazing walking into my PNC bank to give them the consumer version of "the finger" by telling them I was closing my account. If going online feels too risky or weird for some people then using a local credit union might be a nicer alternative. But for me the online bank is the way to go. The only catch to online banking is it can be tricky depositing cash to your account. For cash deposits, I found a nice workaround with an account at Bluebird. They let you make cash deposits at Walmart for free which you can then transfer to your online account.
NYReader (NYS)
I found that having both online accounts and local credit union accounts works for me. If I need to access cash quickly I go to the credit union for it. I also deposit cash there too. Then I can transfer money from the credit union to the online bank savings account so it is "stashed away". Best of both worlds as far as I am concerned.
SB (Bay Area)
Count me in as a millennial who switched to an online bank. Very easy to convince my sister to as well after I told her about the better rates and great mobile app. My parents, however, have been harder to convine. While the won’t move their checking (inertia) but after two years they have finally set up an online savings account with an online bank. Boomers can!
Anne Hajduk (Falls Church Va)
I was an ING Direct customer. Their interest rates were the same for small and big savers, and much better than brick and mortar banks. then the government allowed Capital One to buy them up. Guess what happened?
Brad (Texas)
Their rate decreased down to ~0.75% while still under the ING Direct name. The rates have only gone up while under the Capital One 360 name.
Ann (NY)
I too was an early advocate of ING Direct. Their savings rates and customer service were exemplary until Capitol One took over. I closed my accounts and transferred everything to Ally Bank and my credit union. I did keep their credit card because it does not charge international transaction fees but only us it when I travel and pay the balance in full. I've never looked back..
Ed (Old Field, NY)
A credit union is another possibility.
Athawwind (Denver, CO)
Not my credit union. I just pulled out their last statement to compare its rates with what I have seen in comments here. I am going to look into moving at least some of my savings, which are dwindling as I enter my ninth year of retirement. My only issue is can these online banks be trusted and are they secure? Are they rated in "stars"? Thank you NYT, and commenters, for this useful information.
NYReader (NYS)
@ Athawwind - I also have accounts at a credit union, which aren't paying much in interest. I decided to look into online banking and opened a savings account a couple of years ago with Discover Bank. It was easier than I thought it would be. I applied online, it was very straightforward. Discover has excellent customer service, you can call them to set up an account as well (or to answer any questions). I recently opened a IRA CD as well, it was a bit more complicated, but I was able to figure it out (eventually!) So far I am very pleased - no problems whatsoever. Their website is easy to navigate and schedule transactions. I can check my account balance anytime, but I also receive a paper statement quarterly.
Look Ahead (WA)
For the modest amount we keep in checking accounts to pay the bills on-line, we use a local credit union. Unlike the big banks, they charge no monthly fee, regardless of balance. And they offer below-market rates on consumer loans, because they are a non-profit. They also offer every service as the big banks, are more vigilant about potentially fraudulent activity and are more pleasant to deal with. Best place to save cash above monthly needs is in a short term investment grade bond fund, which loses very little value even in a severe downturn and is very responsive to interest rate changes. The money can be transferred directly into a checking account in 2 days max as needed, with just a few clicks. Its also a good place to harvest a portion of investment gains or other windfalls during good times as a reserve against bad times.
terry (winona mn)
We use an online bank for savings account. Our regular bank (checking, auto deposits etc) has an external transfer feature. Very convenient. Online savings account just increased to 1.60%. Well worth it.
LivinginNY (NY)
@Paul from Brooklyn: What's the real calamity is if you're a retiree, or a person trying to save up a down payment for a house, and banks charge 26% interest on their credit cards and pay depositors less than 1% on savings.
Ryan (Granby, MA)
If a retiree is depending on the interest from a savings account, they need to talk to a certified financial planner (preferably a fee-only one, so they aren't pushed into bad choices that benefit the adviser). Savings account interest should be a small matter in a retirement plan, because fairly little money should be kept there.
Oh please (minneapolis, mn)
I keep a minimum of money in my checking account and most of it in an on-line bank account where I can have six transactions a month and get a higher interest rate. The so called interest I receive in my checking account is a joke, it amounts to around .06 cents a month. I wish they would just stop it totally, it's just an annoyance.
Pat (Somewhere)
Keeping your money in a bank paying 0.06% is giving them an near-interest-free loan. They depend on inertia and the perception of it being such a big hassle to switch banks to keep this arrangement going, but it's really not that big a deal.
And if you take inflation into consideration, that money actually loses value in real terms. That's bad news for anyone, but is especially concerning for anyone counting on a savings account for retirement. If money is held any place where the interest rate is below the rate of inflation (about 2% or so), the purchasing power of that money shrinks over time. You may as well keep your cash under the mattress.
Paul (Brooklyn)
Bottom line it here imo. Unless you like events like the Great Depression of the 1930s or the Great Recession of 2007 where after great partying you have upheavals in the economy with high unemployment, housing crashes, great deflation or inflation etc. opt for the Fed to carefully control the rates where they don't go too high or too low. Yes I know it is boring but you can sleep at night knowing no calamities are around the corner.
June (Charleston)
This is good information but it would have helped if some online banks were mentioned. Also would be helpful to know some criteria to evaluate the quality of the online banks.
Blake (New York, NY)
Hi June, I've had a good experience with Live Oak Bank for the past year or so. Their current interest rate is 1.70%, and they've been increasing it every few months. They're FDIC insured and easy to deal with. The one draw-back is that they only allow transfers in and out from other banks - they don't issue ATM or checking cards.
LivinginNY (NY)
Check out for all the information you need, both local and nationwide.
lolo (Parker, CO)
Ally bank is great online bank. My savings is there.
marty (andover, MA)
Another alternative is to open a simple brokerage account at an entity like Fidelity investments. That enables the account holder to not only access equities, mutual funds and bonds, but the basic money market account currently has an interest rate of 1.28%. In addition Fidelity provides access to thousands of fully FDIC insured certificates of deposit ranging from one month to ten years. There are many newly issued CDs paying anywhere from 1.55% for one month to 2.2% for one year. They can be purchased online for no fee. Many of the CDs provide for monthly interest payments and as mentioned are fully FDIC insured.
Pat (Somewhere)
The Vanguard Prime Money Market Fund (VMMXX) is currently paying 1.77% with a $3,000 minimum investment. And it has checkwriting privileges as well.
Jim (NH)
if you don't need the money soon you can get a 5 year fixed annuity north of 3.5%, and 3 years over 2.5%....
marty (andover, MA)
Good point...Fidelity has a similar MM account. The problem is that this type of MM account now comes with two "provisos". One is that the value can "break the buck" and go below $1 per share, and the second is that the fund can erect a "gate" that would allow the fund to halt or limit redemptions indefinitely. The Fidelity MM I referenced is a govt MM acct. that won't break the buck and has no redemption limitations. The "trade-off" is that the interest rate is about 1/2 point below the fund you referenced.
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