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If you're earning less than 4% on your cash, well, you're just not trying.
Sure, the interest rates on most traditional checking and savings accounts are practically nonexistent. But competition from Internet-based banks has compelled banks and brokers alike to bid for consumer attention.
Financial institutions "are very aware that consumers are getting smart about rates," says Adam Honore, a senior analyst with Aite, a financial-services research firm. It doesn't hurt that the profits financial institutions reap by moving account applications and maintenance online far outweigh the beefed-up interest rates they're offering.
The result: a bevy of high-yield savings, money-market accounts and, newest on the scene, even checking accounts for interest-hungry investors to choose from. Which is best? Here's where to bank and when:
Traditional banks
Of the 10 biggest U.S. banks, only Citibank, HSBC and Washington Mutual offer high-yield savings accounts. Customers must apply for and maintain these accounts online, which cuts costs on everything from paper to personnel, thus allowing the bank to offer an extremely competitive rate of 5% or more. The rest, including Bank of America, Chase, Wachovia and Wells Fargo, offer a paltry annual percentage yield, or APY, of 0.10% to 0.15%.Unless yours offers a high-yield account, a traditional bank is best used as a way station to funnel savings to higher-yielding accounts, says Beau Brock, a certified financial planner in Tulsa, Okla. "It comes back to the convenience factor," he says. Local banks have the advantage of in-person deposits and widespread ATMs. You can then transfer funds to a higher-yield online account.
More from MSN Money and SmartMoney
That said, if your traditional bank happens to offer a high-yield savings or money-market account, you'd be a fool not to take advantage of it, Brock says. HSBC, for example, offers rates of 5.05% on its high-yield savings account, and you can link to an existing checking account.
Transfers between accounts are instantaneous, enabling you to keep a low checking balance and put the rest of your cash to work. One caveat? Your online transfers may be limited. Citibank, for example, allows only six per month but does permit unlimited interaccount transfers at ATMs.
SmartMoney looked at which accounts offered the highest rates, with the lowest fees and the least restrictions. Here are the best rates, from highest to lowest:
| Account / institution | Account type | Annual yield | Minimum initial deposit | Fees |
|---|---|---|---|---|
Savings | 5.05% | $1 | No monthly service fees or minimum-balance fees. | |
Savings | 5.05% | $1 | No monthly service fees or minimum-balance fees. | |
Savings | 5.00% | $1 | No monthly service fees or minimum-balance fees. Consumers who don't pay two bills online each month using a linked checking account get a lower rate of 4.65%. | |
Savings | 5.00% | $1 | $300 daily balance required to avoid the monthly $4 maintenance fee. |
Continued: Internet-based banks
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