Online savings accounts that pay better interest

by:  Clark Howard

Earning money on your savings might be getting a little easier soon.

The Federal Reserve is trying to re-inflate the economy by keeping interest rates low for borrowers, but as a result, savers are getting punished.

This is holding back a lot of money that would normally flow into private investments or the stock market.  People have been burned so badly since 2000 and throughout the financial crisis, many investors have just given up on the idea of investing. Instead, they’re stashing their cash in old-fashioned savings accounts–most of which earn virtually 0% interest!

With some of the giant banks, the “earnings” even fall into negative territory once the bank takes fees for such things as “too much” or “too little” activity.

This has left a huge opening for online banks. TIAADirect is currently offering 1.25% on savings, and as of today, Barclays Bank has just created a savings account earning 1% interest. By comparison, the biggest player, ING Direct, is currently paying .8%.

CD products, on the other hand, are not offering a great deal right now. 18-month CDs are still paying less than 1%. With their minimums and early withdrawal penalties, they remain a less attractive option than a straight-up savings account.

Why are TIAA and Barclays offering these better deals? It allows them inexpensive access to funds that they can then use for loans.

And as the Fed dials back on the manipulation of interest rates in the upcoming years, you’ll see that unequivocally, these online banks and credit unions will continue to emerge as the best, smartest place to earn the best interest rate on your savings.

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