Dedicated to Deposits: Deals, Data, and Discussion
About Ken Tumin About Ken Tumin - Founder and Editor

Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

Featured Savings Rates

Popular Posts

Featured Accounts

Strategy for Getting the Best Yields in Deposit Accounts


This record low interest rate environment is making it very difficult for those who depend on interest income from their bank accounts. Many savers are probably trying to find what to do with their matured CDs which had been earning over 5.00%. Now it's very hard to find a 3.00% APY. I thought it would be useful to describe some strategies that may help you make a little more interest in this environment.

The first decision you'll need to make is if you want a liquid account or a certificate of deposit. In this post I'll focus on liquid accounts. The next post will focus on CDs (see post).

A liquid account like a savings account or checking account has the advantage of not locking in your money. There's no penalty if you need the money either for an expense or a better bank deal. Also, the rates are variable which is a plus if interest rates start to rise. However, in the last two years this variable interest rate feature has been a disadvantage as rates have fallen.

Liquid accounts can be tempting when many have yields higher than 1-year CDs. However, it should be noted that rate leaders rarely stay on top for more than a year. If you want the top rates, you need to plan to move your money to new banks or credit unions at least once a year.

The best rates on liquid accounts are typically only available online. If you only want to bank at brick-and-mortar offices, the yields that you find will likely be much lower.

Another issue to consider is that the liquid accounts with the best rates typically have balance caps. You only earn the top rate up to that balance cap. This cap can range from $10K to $250K. In the past it used to be the best rates were for those with the largest balances. For many liquid accounts today, it's the other way around.

For liquid accounts, there are two basic accounts to consider for maximum interest rates: 1) Savings Accounts 2) Reward Checking Accounts.

Savings Accounts

With a savings account, your money earns interest without any work. I consider money market accounts to be essentially the same as savings accounts. The main difference between these is that money market accounts typically have limited check writing. I'm also going to include a regular checking account in this group. There are now some internet checking accounts that offer rates just as high as online savings accounts. The main difference between checking accounts and savings accounts is that checking accounts don't have withdrawal limitations. Savings accounts and money market accounts are limited to six electronic or check withdrawals per month per federal regulation. The main feature shared by all of these liquid accounts is that they don't require any work to qualify for the high rates. Perhaps a better name would be work-free liquid accounts.

High-Yield Reward Checking Accounts

The other type of liquid account is the high-yield reward checking account. These accounts have higher yields than internet savings accounts, but there are two main disadvantages: 1) Balances that qualify for the high yield are capped, typically at $25K, 2) Monthly requirements like making 10 debit card purchases a month are required to qualify for the high yield.

Some banks that offer reward checking accounts also offer a companion savings account. The savings account also offers a high interest rate. Like the checking account, the high rate is typically limited to a certain balance. Also, you have to qualify for the high rate by meeting the reward checking requirements. Thus, I consider the reward checking/savings combo to be just a version of the reward checking account.

The debit card usage requirement is the main feature that allows these reward checking accounts to pay higher rates than savings accounts. For every debit card purchase, the retailer pays a small fee to the banks. This is called the interchange fee, and it averages around 1.40% of the purchase. There's concern that the Fed's proposed regulation on interchange fees will end these reward programs. It's too early to know what the actual effect will be, but it's something to consider. Rates could be considerably lower in the next few years.

Comparing Yields on Savings, Money Market and Checking Accounts

If you want to find the best rate regardless of the type of account, you can use our Deposit Account Comparison Tool. In the top right box, you can select the type of accounts you want to search for and the dollar amount for your investment. The dollar amount is useful to factor in balance caps. The larger your balance, the more effect the balance cap will have.

What's Your Strategy?

How do you maximize the interest in your liquid accounts? When do you decide to move your money to another bank? Has reward checking replaced online savings accounts for most of your money that you want to stay liquid?


  Tags: savings account, checking account, money market accounts

Related Posts

Comments
15 Comments.
Comment #1 by Anonymous posted on
Anonymous
I keep shifting my funds between banks when the rate drops in one bank.  I open new accounts when a better offer is available from my current account rates.  As rule, I begin moving money when the interest differential is 1%. Sometimes I move money when the difference is only 0.5%.  I don't have any reward checking accounts because all of my in-store transactions are done via credit card.  Also all of my online purchases are also done via credit card.  I charge virtually everything in my daily budget except for a few items (like property taxes and a few utilities who charge a "convience" fee).  In fact, I only write a very small number of checks evey year and nearly go the ATM like once or twice a year.  Having to move my purchases from credit to "signature" debit would rob me of the rebate money from my credit card account and just transfer it over to the higher rate reward checking bonus interest amount.  The credit card rebate bonus doesn't require any monitoring of the account unlike reward checking where you have to constantly monitor it every month.  Rates have dropped to close to 0% that moving it around now is not much of a difference now.  The "best" strategy is not to depend on the interest income in your daily budget.  This is not possible to apply to all people, but it is something that you should strive for.

16
Comment #2 by Anonymous posted on
Anonymous
To #1.  Great minds think alike.  Hee Hee  I do exactly as you do with bank accounts, credit card, everything.  My Debit card gets swiped at the bank's ATM once in a while and never used otherwise.  All of my bills and purchases go on the credit card.

6
Comment #3 by adityanm posted on
adityanm
To 1 & 2. You can use a debit card wherever you use a credit card and meet RCA equirments to get higher interest.

I also pay my utility bills in small amounts using debit cards.

3
Comment #4 by Anonymous posted on
Anonymous
I pay everything possible with one credit card  and then  make multiple payments on it from my various

RCA.  I pay the bulk of the card from my local non reward account.

5
Comment #5 by Anonymous posted on
Anonymous
Had Reward Checking Account without direct deposit for six months.  Last week transferred SS check through to them as direct deposit to earn additional interest and lo and behld just as this is transferred the whole interest rate falls by more than fifty per cent.  Still better than nothing but I hope things improve all around sooner than later.

4
Comment #6 by Anonymous posted on
Anonymous
To #3:  Yep, I know, but I just do not want the hassle involved in RCA's.  Besides with my credit card, I get a $100 gift card every couple of months or so and use it for my morning coffee until it runs out.  I also like the security you get from using the credit card for purchases.  I have nothing but respect for those who are willing to do what they need to do for RCA's, but it is just not for me.

4
Comment #7 by Anonymous posted on
Anonymous
to 6 what ever happened to chris farley yup

1
Comment #8 by mr trolline (anonymous) posted on
mr trolline
invest in quality bonds paying more than 5 percent

2
Comment #9 by saints preserve us (anonymous) posted on
saints preserve us
the matress is where my monies go live on a meager pension  w a small brokerage account  and  enjoy life to the fullest  and ps the big apple is my residence

4
Comment #10 by Anonymouso grady (anonymous) posted on
Anonymouso grady
you live in new york with only that how is that possible moved out of ny for the good life on the bayou where is jeff ry pilcher be careful is you use the site you will be banned and  acussed of  sending out of hundreds of spams

1
Comment #11 by Anonymous posted on
Anonymous
I like the reward checking accounts because it allows us to give more to those in need. We make an extra $200 a month on the 3 we have. I also use Ken's site for information on how to make extra money on credit cards and other checking and savings accounts. Last year we were able to make an extra $3800 doing this over and beyond the reward checking accounts. Also received an I-Pod and this year an I-Pod Touch. Beside giving the money we make to give on these accounts we also give 15% of the Social Security that we live on. We pay taxes on our pension and then gift that to our children to pay extra on their homes. We have savings for a nursing home for 10 years for each of us in case we need it. We do enjoy giving to others. I use coupons and coupon sites to buy more groceries for the food banks. I give the RMD from my inherited IRA to the food bank which was the original IRA owners favorite charity. We have had a good life and were fortunate to have jobs and hope to help others that are not so fortunate. We were able to buy 2 slow cookers for 93 cents each at Penney's, 30 Smart Ones frozen dinners for a total of $1.35. Coffee pots and grills for $6 each during the Thanksgiving sales on line from Kohl's with free shipping, was too late for the slow cookers and waffle makers.  This week we were able to get 8 free pkgs of pancake mix and paid 50 cents each for several boxes of wheat thins, 2 turkey sausage for 50 cents each, (am fixing up breakfast casseroles and delivering for Christmas morning breakfasts) 2 vegetable dips for 19 cents. 2- I Can't Believe Its Not Butter for 75 cents each with $2 toward bread, free eggs. Hershey Pot of Gold candy for $1, Planter's honey roasted peanuts for 25 cents, free dish soap, free floss, free toothpaste, and toothbrush and free deoderant. We have to teach others how to do this.  Ken's site has been such a great site to teach us all about what is available in banking if we want to take the time to do it. Again it is all about making the right choices for us and for teaching and helping others.

12
Comment #12 by Anonymous posted on
Anonymous
I used to like my reward credit card, with cash back, from a Big Bank before you had to play games. Now the rewards are down, categories rotate, and you have to sign up every so many months so that purchases count. Who wants to deal with that nonsense? Now I have a PenFed reward credit card that still has a decent rate without the games, and I opened a reward checking account, which I thought I would never do. I have been pleasantly surprised to find how easy it is to meet the account requirements, and although the rate has dropped, it is still quite respectable.

I agree with #11. I get a lot of fun out of seeing how much of a return I can get on my money and occasionally enjoy some indulgence from it, but the best part is giving most of it to charities. My favorites are animal shelters. Yes, it is possible to do good and do well. Hope everyone will give some thought to this during the holidays.

Special thanks to Ken for the tips and advice throughout the year that benefit all of us readers!

8
Comment #13 by Rosedala (anonymous) posted on
Rosedala
Thank you #11 and #12 for your kind, tender hearts in giving your banks' earnings to the right causes - the poor and the nonhuman animals.  The latter being the "poor" who are at the very bottom of the mountain of exploited beings.  :)  I'm a vegan of 36 years! meaning not eating nor wearing nor using the nonhuman animals, and I too try very hard to make the best out of my savings, thanks to Ken's efforts, (moving my savings here and there) to give more to those who need it most.  Merry Christmas and Healthy, Happy and Prosperous New Year to Kenn and everyone here!!!    :o)   Rosedala

P.S.  <<There are now some internet checking accounts that offer rates just as high as online savings accounts.>>  anyone knows wha'ts the difference between "internet" and "online"?  thankis for a clarification?

2
Comment #14 by Rosedala (anonymous) posted on
Rosedala
Sorry, disregard my P.S.  I just woke up!   lol!      Rosedala

1
Comment #15 by mtbdsavage posted on
mtbdsavage
Here's what I do...I treat my rewards checking like a savings...I do small transactions and have small amount direct deposited every other week...I usually always have a higher balance at the end of the month that at the beginning...only a time or two have I come out maybe $10 less at the end of the month. Once I get to the max 25K though, I'll have to do something different, but it works for now.

8