Ian Pareja, a test engineer in California, says he “got super excited and went down a rabbit hole” when he learned about the higher rates that some savings accounts now offer.
“Originally, when I was banking with Chase, they would only give me less than 0.1%,” Pareja says. “I found out that's normal. A lot of Americans are losing out on free money.”
After undertaking research on savings account rates, Pareja found a new savings account at an online bank that offered a rate of about 2.2%, which meant his money could earn more than 20 times what it earned in his old account. He quickly switched to the online bank and says he’s using the savings account for his long-term goals, including saving for a house.
“People see a number, whether 0.1% or 2%, it seems insignificant to them, but if you have $10,000 in your savings account and you don’t need it immediately, you can generate $200 or $300 versus, like, $10,” he says.
Pareja has the right idea about how to approach savings accounts, experts say. Most Americans may not give a second thought to these accounts, but more than 1 in 4 now offer over 2% interest and no minimum deposit, balance requirement or monthly fee, according to a recent survey from Bankrate.com.
Despite this, only 14% of Americans earn more than 2% in their savings accounts, the study found.
“About a quarter of people with savings aren't earning any interest at all,” notes Greg McBride, chief financial analyst for Bankrate.com. “There are a lot of potential interest earnings that people are leaving on the table.”
Retirement's new game: Conventional wisdom on investing may need to change by life stage
Tax break: Here are accounts that can ease tax burdens during big life transitions
Don’t lose out to inflation
That’s problematic because those bank customers aren’t keeping up with inflation, which stands at about 2%. McBride says tapping higher-interest savings accounts can help protect the buying power of your money.
Certificates of deposit – known as CDs – can offer rates of 3% or higher, although they have more restrictions than savings accounts. Typically, both savings accounts and CDs offer higher rates than checking accounts. Savers can search for rates at sites like Bankrate.com and Nerdwallet, which allow you to screen by interest rates.
Not sure where to start? Here are 3 tips from experts:
1. Check your time frame
Determine what you’re saving for – including a realistic assessment of when you’ll need the money, says Arielle O’Shea, investing editor at NerdWallet. For some people, a CD might be a good choice if they know they’ll need their money at a specific point in the future, but not before.