Best savings accounts 2018: Switching from checking accounts can boost your cash

Finding a new bank account for cash earning zero interest can add up to real money. 

Got a pile of idle dollars sitting in your checking account due to a recent home sale? Or the profits from selling Apple stock, or some other windfall? If so, you’re missing out on making more money, as most checking accounts pay zilch in interest. 

But that common personal finance mistake is easy to fix with just a tiny bit of effort.

There are savings and money market accounts that offer much bigger yields of a full percentage point, or even more, that will enable you to actually make some money on that cash (and which allow you to access it at a moment’s notice).

Learn more: Best current CD rates

Worth the hassle

Sure, it’s a hassle to keep track of the interest you’re earning on the balance of your checking or savings account. Or searching for online banks that offer higher yields. Or taking the time to consider the offers for higher interest accounts that banks mail to your house. 

But the drudgery and inconvenience is worth it, especially at a time when the nation’s central bank is raising interest rates back to more normal levels after pegging them at zero for many years. All it takes is a 15-minute visit or phone call to your bank to see what higher-yielding options are available. Or you can shop around and move some cash to another financial institution or digital bank that offers higher interest.

“While checking accounts are useful for making purchases and paying bills, they are not an effective savings strategy,” says Pierre Habis, president of PurePoint Financial. “Putting funds into a savings account where you can access it when you need to but also earn interest is a smart way to make your money work harder for you.”

From $30 to $5,000

I took the initiative, and it paid off. Since last August, the proceeds of my home sale have been sitting in a checking account earning a minuscule interest rate of 0.01 percent. But a light went off when an offer from a competing bank arrived offering a much higher rate in an online savings account.

I went to my local bank and shifted the extra cash into a premier money market account with a yield of 1.70 percent annual percentage yield, or APY. That 15-minute visit boosted my annual interest from roughly $30 a year to more than $5,000. 

That’s real money.

Given that there are an estimated 351.4 million consumer checking accounts in the U.S, according to Michael Moebs, an economist and CEO of Moebs Services, it’s likely that lots of other Americans are leaving money on the table by stashing cash in accounts that pay little or no interest.

At the end of 2017, the average U.S. checking account deposit reached a record $3,700, which is $1,500 higher than the longer-term average balance of $2,200 from the start of 1991 through the end of last year, according to data from Moebs, which provides research and consultancy services to financial institutions. 

Lost interest

By Moebs’ calculation, there is roughly $527.1 billion that people could either spend or move into accounts that pay out more in interest. And assuming the 2.01 percent money market yield offered by some banks at Bankrate.com, that equates to $106 million in lost interest.

The costs of not taking advantage of higher-yielding accounts can add up.

The average baby boomer has a checking account balance of $8,300, according to a recent survey by PurePoint Financial, a hybrid digital bank and division of Union Bank now offering an online savings yield of 1.9 percent. If a boomer’s $8,300 checking account balance was instead sitting in a savings account yielding around 2 percent, it would earn $167 more per year in interest.

Similarly, an investor who made a $10,000 investment in Apple’s stock five years ago and sold it Tuesday, locking in a 194 percent gain, would now be sitting on roughly $29,500. Putting that profit in a money market at 2 percent for a year rather than a checking account paying zero interest would add up to $590 more in interest.

“Consumers lose out on hundreds or even thousands of dollars by keeping their money in low-earning accounts,” says Kimberly Palmer, a banking expert at personal finance site NerdWallet.com. “By earning more money on their savings, savers can stretch their money and their budgets further.”

That’s why it pays to try to lock in the highest rate you can get for your money. While the national average interest paid on savings accounts is 0.09 percent, there are rates as high as 2.05 percent, according to Bankrate.com’s site. Similarly, while the yield on the average money market account is 0.2 percent, rates as high as 2.01 percent are available.

Know your APY

Knowing what your annual percentage yield is critical in the quest to make your money work as hard as it can for you. Sadly, too few people take the time to find out. Sixty percent of Americans with savings accounts don’t know the APY, according to a survey by Marcus by Goldman Sachs, an online platform that offers personal loans and high-yield savings accounts that now feature a 1.85 percent rate. And more than half (52 percent) don’t know how much money they made off of interest from their savings account last year, the survey found.

That information shortfall often leads to less income for savers who end up earning less on their money.

“Not knowing your APY can be harmful … if you’re saving money (because) you could be missing out on opportunities,” says Marguerita Cheng, CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland.

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