In a rocky economy, high interest rates are the holy grail of conservative investors, especially those who don’t want to to invest in bonds. But in this rocky economy, “high interest” hasn’t really meant much: High-interest savings accounts are returning below two percent!
Get Rich Slowly readers are just like everybody else. A couple of times a week, I get e-mail from somebody looking for higher interest rates, but puzzled about where to find them. So, inspired by a recent article in Consumer Reports Money Adviser, I’m going to run down the top choices for finding high interest rates.
First, I want to remind you all of one thing: Interest rates aren’t likely to rise until the economy improves. ING Direct doesn’t hate you. Ally Bank isn’t trying to rip you off. We’re just not in a high-interest rate environment right now. The government is keeping rates low because they don’t want you to save—they want you to pump your money into the stock market or the general economy. Until things turn around, we won’t be seeing the high interest rates that were around back in 2006.
So where can you go for high interest rates? Let’s look at some options.
High-Interest Checking Accounts
Many small community banks and credit unions offer high-interest rewards checking accounts, which they provide in partnership with companies like BancVue. Different banks have different names for these checking accounts, but they all share similar features. These so-called rewards checking accounts offer high interest rates—if you meet certain requirements. You usually have to:
- Get your monthly statement online, not via snail mail.
- Log into your account at least once a month.
- Make a certain number of debit-card purchases each month (usually around twelve—and ATM withdrawals don’t count).
- Make at least one electronic transaction per month, such as an automatic payment to the electric company.
If you meet these requirements, you can currently earn interest rates of up to about 5 percent on at least a portion of the money in your account. At some banks, you can earn this high interest rate on amounts up to $10,000; at others, it’s $100,000. Any money above that cap earns a smaller return. And if you fail to meet the account requirements in any given month, that also triggers the lower interest rate.
How can these banks offer high interest rates on checking accounts? According to the July 2010 issue of Consumer Reports Money Adviser:
Some account requirements—such as banking online and receiving electronic statements—provide cost savings to the financial institutions, while frequent use of debit cards generates fees. Those savings and revenue account for the higher rates.
These accounts are localized, and you’re going to have to search for the best bank in your area. Here in Portland, for example, Advantis Credit Union is offering 2.50 percent on their Fusion Checking (for balances up to $30,000). But you can find higher interest rates elsewhere in the U.S.; if you’re in Alabama or Georgia, Charter Bank is paying 5.01 percent (for balances up to $25,000).
Note: For the past two years, Kiplinger’s Personal Finance has named the Charles Schwab High Yield Investor Checking account its “best checking account of the year”. It currently offers a 0.50 percent variable APY, and must be tied to a brokerage account. But if a rewards checking account isn’t an option for you, the Schwab account may be a good choice.
