Personal Finance

These savings accounts will earn you over 20 times more than the average rate

Key Points
  • As the Federal Reserve lowers rates, some banks are pulling back their offerings on savings accounts and certificates of deposit.
  • Even so, it's worth shopping around for the best available rate.
Tereza | Twenty20

As the Federal Reserve cuts rates, it's a good idea to make sure your savings are still getting the biggest boost possible.

The central bank slashed its benchmark short-term interest rate this week by a quarter point for the third time this year. As a result, some banks are pulling back their offerings on savings accounts and certificates of deposit.

Online bank Synchrony has dialed back its savings account return to 1.9%, from 2.25% this summer. And the bank slashed the rate on its five-year CD to 2.30% from 3.10%.

"I would expect rates to continue to drop on savings accounts," said Allan Roth, founder of financial advisory firm Wealth Logic in Colorado Springs, Colorado.

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Even so, returns remain high by recent standards — you'll just want to shop around for the best offer.

"You can still earn more than the rate of inflation and that was not the case for more than a decade," said Greg McBride, chief financial analyst at personal finance website Bankrate.com.

Your savings can pick up a 2.30% return at Brio Direct, an online bank. Vio Bank is offering 2.27% .

Live Oak Bank is offering 2.35% on a five-year CD, if you can tie up $2,500. A one-year CD at BMO Harris Bank is paying 2.20%, but the minimum deposit is $5,000.

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And robo-advisors Betterment and Wealthfront tend to offer some of the best rates on their cash management accounts, said Arielle O'Shea, banking expert at NerdWallet.

You can find the best, up-to-date rates at Depositaccounts.com.

O'Shea offered an example to illustrate the benefit of chasing the best savings rate: Say you store $10,000 in a traditional bank account paying the national average of 0.09%. In five years, you'd have earned $46 in interest. If you had kept your money somewhere earning 2% a year, however, you'd have added $1,051 to your balance.

If you are stuck between putting money aside in a savings account or CD, the question to ask is "when do you need the money?" said McBride.

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Your emergency savings — ideally enough to cover six months' worth of expenses — should be in a liquid account, he said. Once you reach that goal, you can tie up more money in a CD.

Roth offered an alternative: finding a CD with the lowest penalty. That way, you can match the benefit of a high-interest savings account without the restrictions of a CD. "If you need the money, you break the CD," Roth said.

For example: Let's say you parked your savings in a five-year CD with a rate of 2.5% and an early withdrawal penalty of five months' interest and then dipped into it after just three years. You'd still have picked up an annual rate of 2.16%.

For goals further into the future, don't rely on CDs or savings accounts, said Lisa Gerstner, contributing editor at Kiplinger's Personal Finance. "Put longer-term savings, such as for retirement, in the stock market," she said.