On Wednesday, the Federal Reserve announced another rate increase, this time by a quarter percentage point to a range of 4.75% to 5.00% — an expectedly smaller bump given the recent bank failures.
For everyday consumers, the rate raise means the continuation of a familiar story: It's becoming even more expensive to borrow and more rewarding to save. But even as savings accounts' annual percentage yields (APYs) rise higher, does it make sense to keep switching accounts between banks to chase the highest rate?
Below, CNBC Select identifies two questions to ask yourself that will help you decide if switching accounts is worth the hassle.
What rate is your savings currently earning?
First things first — take a look at the current APY on your savings account. If you're saving with a traditional brick-and-mortar bank, you're more likely to benefit from a switch, while a customer with cash in an online high-yield savings account may already earn a pretty decent APY. This is because traditional banks with physical branches often have more overhead costs to pay for, which translates into lower rates being passed onto their customers.
Most savings accounts with traditional banks earn close to the national average APY (just 0.37% at the time of writing). Considering today's top high-yield savings are offering APYs around 5% (more than 13X the national average), moving your savings from a traditional bank to an online one offering a high APY is well worth it, assuming you're comfortable working with a primarily digital institution.
The FDIC-insured UFB Secure Savings account, for example, is offering one of the highest interest rates currently available at up to 5.25%, and with no cap and no minimum deposit requirement. At the time of writing, all balance tiers earn this APY.
UFB Secure Savings
Annual Percentage Yield (APY)
Up to 5.25% APY on any savings balance; add a UFB Freedom Checking and meet checking account qualifications to get an additional up to 0.20% APY on savings
Minimum balance
$0, no minimum deposit or balance needed for savings
Fees
No monthly maintenance or service fees
Overdraft fee
Overdraft fees may be charged, according to the terms; overdraft protection available
ATM access
Free ATM card with unlimited withdrawals
Maximum transactions
6 per month; terms apply
Terms apply.
Read our UFB Secure Savings review.
Take note that UFB doesn't always automatically enroll its customers into new UFB accounts with higher APYs if available at the bank; the account holder has to contact the bank. Another option for savers is the FDIC-insured Vio Bank's Cornerstone Money Market Savings Account, which functions as a high-yield savings account. It currently offers 4.50% APY with no cap and a minimum $100 deposit.
Vio Bank Cornerstone Money Market Savings Account
Annual Percentage Yield (APY)
Up to 5.30% APY
Minimum balance
$100 minimum deposit
Monthly fee
$5, unless you opt for paperless billing
Offer checks?
No
Offer debit/ATM card?
No
Terms apply.
Once your cash is in a high-yield savings account, it's often not worth the effort to switch to another bank offering a slightly higher APY (such as less than 1% more). This is especially true if your balance is low (more on this below).
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How big is your savings balance?
JC Abusaid, an accredited investment fiduciary (AIF) and CEO of wealth advisory firm Halbert Hargrove, tells CNBC Select that the decision to chase a higher savings APY also depends on how much one has in their savings account.
"Calculate how much interest you'd actually be making if you switched accounts," suggests CFP Sophia Bera Daigle, founder of Gen Y Planning, a financial planning firm for millennials.
For example, let's assume there's a savings account offering an APY 1.00% higher than your current account's APY. If you have a balance of $10,000 in the account, switching to the new account would net you a $100 increase and may be a good move. But if you have a smaller balance of $2,000 (and don't plan on contributing more), then you're only earning $20 more.
If your savings balance is lower or will not be maintained throughout the year to benefit from the higher interest rate you want to switch to, CFP Kamila Elliott, founder of Collective Wealth Partners, a wealth management firm dedicated to Black Americans, suggests that chasing is not worth it.
Those with a significant amount of savings in one account (who don't want to put any of it in the market) should first make sure it's at or below the FDIC-insured maximum limit of $250,000 so they know it's protected. If they have more than $250,000 to save, they may want to spread their cash out amongst various savings accounts so their money stays insured.
For these types of savers, there are platforms like MaxMyInterest, which automatically reallocates savers' funds to different FDIC-insured online bank accounts depending on which is paying the highest rate. Essentially, savers can keep scoring better APYs as interest rates raise without having to take any action. This is a move mostly reserved for those with large savings balances as MaxMyInterest CEO Gary Zimmerman tells CNBC Select, "We find most of our customers are managing larger balance accounts, typically at least $50,000 but often several hundred thousand to several million dollars."
Compare offers to find the best savings account
Bottom line
Before switching savings accounts to chase a higher interest rate, look at your current APY and balance. It doesn't make sense to change your savings account with every rate increase if you're already earning a pretty decent APY or if your balance isn't that large.
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