Nick Clements / MagnifyMoney.com
Although the Federal Reserve has been consistently increasing interest rates, most savers have yet to feel the impact. At Bank of America, the highest advertised rate for a Rewards Savings Account is only 0.06 percent. A $25,000 deposit would generate a mere $15 during of interest over one year, before taxes. And Bank of America is not alone: Most traditional banks have stubbornly kept interest rates low on savings accounts while they happily increase rates on loans.
The situation is different online, where competition has never been fiercer. Internet-only banks are engaged in a pricing war that shows no sign of slowing down. Well-known banking brands are making it easy for savers to earn at least 2.05 percent APY with an online savings account.
Consider smaller bank brands
And if you are willing to experiment with smaller or lesser known bank brands, it is possible to earn 2.35 percent or more. Synchrony Bank, Marcus (by Goldman Sachs) and Barclays are all well-known names offering 2.05 percent. Synchrony is a publicly traded company that offers private label credit cards for brands like Amazon.
Goldman Sachs is one of the most famous investment banks that has been rapidly expanding its personal loan business. And Barclays is a British bank with a large credit card business in America, including the American Airlines co-brand. All three of these institutions offers FDIC-insured deposit accounts to help fund their loan portfolios and are investing for the long-term.
There are some smaller banks that offer even more lucrative interest rates. Vio Bank, the online division of MidFirst Bank, offers an online savings account that pays 2.35 percent APY with a minimum $100 deposit. A deposit of $25,000 would generate $587 in one year, compared to $15 at Bank of America.
Watch for deposit and withdrawal restrictions
Make sure you do research before selecting an account. The large, well-known brands tend to offer the fewest restrictions, fewest fees and best digital experience. If you consider a lesser known brand, make sure you understand any minimum deposit requirements and any restrictions on the amount that you can withdrawal in a calendar month.
If having immediate access to your money is important, consider a bank like Ally, which allows you to open a linked free checking account that provides debit card access. And if the advertised rate is way above everyone else, you should be somewhat skeptical. Very small banks sometimes offer eye-watering rates to lure in customers, only to reduce the interest rate later.
Certificates of deposit: Think short-term over long-term for now
With CDs, or certificates of deposit, the story is similar. Most traditional banks continue to keep rates low and competition is intense online. However, most of the competition is on the short end of the curve with 1-year CDs approaching 3 percent.
At LiveOak you can earn 2.85 percent APY on a twelve-month CD. You won't get paid much more for longer durations. Most 2-year CDs hover around 3 percent and some of the highest rates available for 5-year CDs are only 3.50 percent.
Given the rapid pace of interest-rate increases, it makes a lot of sense to keep your money in online savings accounts and short duration CDs until rates peak. If the trend of the last year continues, we can expect even more competition after the next rate increase. It is finally a good time to be a saver.
Nick Clements is a former banker turned consumer advocate and co-founder of the personal finance and lending information website MagnifyMoney.com by LendingTree.