Advertisement
retirement

Get the Best Rates on Cash Holdings

Online banks give retirees the most bang for their buck on savings.

Savers trying to earn a decent yield on their cash have faced a long dry spell. The good news is that some banks are starting to open the tap.

As the Federal Reserve raises interest rates, yields on some savings and checking accounts and certificates of deposit are creeping higher. Online savings accounts, for example, now offer top yields of 1.3%, up from 1.05% before the Fed’s December rate hike, and one-year CDs offer yields as high as 1.5%, up from 1.31% in December, according to Bankrate.com.

Advertisement - Article continues below

That’s welcome news for seniors who have been earning next to nothing on their emergency funds and other cash holdings. But if you want to take advantage of rising yields, start shopping for a new account. “If you sit back and wait for your current bank to pass along better deposit yields, you’re going to be disappointed,” says Greg McBride, chief financial analyst at Bankrate.

The reason: Large brick-and-mortar banks generally aren’t feeling much pressure to attract new deposits with higher rates. Savers have been very risk-averse since the recession, and the big banks “have seen a lot of money flow through the doors,” McBride says. Many online banks and credit unions, however, are offering better deals.

Advertisement
Advertisement - Article continues below

If you’re looking for a savings account, check out online banks, where you’ll get “the most bang for your buck,” says Ken Tumin, editor of DepositAccounts.com. DollarSavingsDirect, an online division of Emigrant Bank, offers a savings account with a 1.3% yield, no fees and no minimum balance.

Read the Fine Print

Before opening an online savings account, check the minimum balance required to earn the advertised rate and ask about any monthly fees, Tumin says.

Advertisement - Article continues below

High-yield checking accounts sometimes pay more—but they come with more restrictions, often requiring that you receive electronic statements, use online bill pay or make a monthly direct deposit.

Northpointe Bank’s UltimateAccount offers a 5% yield on balances up to $10,000. To get that rate, you must make 15 or more monthly debit-card purchases, get electronic statements, and set up a direct deposit or automatic withdrawal of $100 or more. Although short-term CD rates are creeping up, the top one-year CD rate of 1.5% “might not sound too appealing when you get 1.3% from a savings account,” Tumin says.

A better CD strategy, Tumin says, is to look for longer-term CDs with mild early-withdrawal penalties. That way, if rates are slow to rise, you get the benefit of a higher rate, and if they climb quickly, you can cash out early with only a moderate penalty. Ally Bank, for example, offers a five-year CD with a 2.25% yield and an early-withdrawal penalty of 150 days of interest. Paying that penalty if you broke the CD after one year would give you an effective yield of about 1.3%—the same as the top rate for online savings accounts. And if you hang on to the CD, Tumin says, “you can keep earning the 2.25%, which is a lot better than 1.3%.”

Advertisement

Most Popular

HSAs Get Even Better
Financial Planning

HSAs Get Even Better

Workers have more options with flexible spending accounts, too.
July 2, 2020
Find a Great Place to Retire
happy retirement

Find a Great Place to Retire

Our cities provide plenty of space to spread out without skimping on health care or other amenities.
July 2, 2020
What Are the Income Tax Brackets for 2020 vs. 2019?
tax brackets

What Are the Income Tax Brackets for 2020 vs. 2019?

The IRS unveiled the 2020 tax brackets, and it's never too early to start planning to minimize your future tax bill.
June 20, 2020

Recommended

If You're Using Cash Less Often, You're Part of a Trend
Technology

If You're Using Cash Less Often, You're Part of a Trend

The pandemic is speeding up the use of digital payments.
July 2, 2020
The Best Bank Accounts for You
banking

The Best Bank Accounts for You

Kiplinger's contributing editor Lisa Gerstner joins our Your Money's Worth podcast to unveil the best banks for all kinds of savers. Also, our hosts R…
June 30, 2020
Resources for alternative forms of transportation needed by many older adults
retirement

Resources for alternative forms of transportation needed by many older adults

For many older adults, having an alternative mode of transportation may be the difference between independence and social isolation.
June 29, 2020
The Best Bank for You, 2020
banking

The Best Bank for You, 2020

We've identified the banks and credit unions that offer the best combination of high rates, low fees and a customer-friendly focus.
June 25, 2020