Online Savings Account Rates Rise Faster as Large Banks Join the Race

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The sixth Fed meeting of 2018 is scheduled to start Tuesday. The FOMC statement should be released on 2:00pm Wednesday. A rate hike is expected which will move the target federal funds rate range to 2.00% - 2.25%. A Fed rate hike on Wednesday would be the third rate hike this year and the eighth rate hike since the Fed began normalizing rates in December 2015. After Wednesday, one more Fed rate hike is likely for 2018. How will this affect deposit rates? To help answer that question, we did an analysis of our proprietary banking data with a focus on savings account yields since the Fed started raising rates.

Savings Account Rate Increases Are Accelerating

Savings account rates have generally been slow to respond to the Fed rate hikes. Only minor savings account rate gains were visible for the first three Fed rate hikes. That started to change after the fourth Fed rate hike in June 2017.

The following chart is an updated version of the March chart. It details how savings account rates have changed at online banks, bricks & mortar (B&M) banks and credit unions. The average rates at each of the three types of institutions are plotted starting in September 2014 and ending on September 2018. The chart is based on savings account data from 6,417 banks and credit unions.

savings account rates - online banks vs. brick and mortar banks

The most apparent aspect of the chart is the yellow line which shows the rise of the average online savings account rate. A slow rise can be seen until June 2017. At that point, the slope begins to steepen.

Less noticeable is the rise of the average savings account rates for B&M banks and credit unions. The dark blue line represents the average savings account rate for B&M banks, and the light blue line represents the average savings account rate for credit unions. Both of these lines have been relatively flat, but that has been changing in the last year. Even for these institutions, savings account rates have been rising in 2018.

The following is an interactive chart of this same data which shows additional details. A summary of these details is listed below the interactive chart:

  • Average savings account yields as of September 15, 2018 are as follows:
    • 0.23% at B&M banks
    • 0.22% at credit unions
    • 1.35% at online banks (almost 6x the yield of B&M banks)
  • Since the start of 2018, the percent yield increases of average savings account yields are as follows:
    • 28% at B&M banks
    • 16% at credit unions
    • 42% at online banks
  • Percent yield increases of average savings account yields for all of 2017 are as follows:
    • 13% at B&M banks
    • 6% at credit unions
    • 32% at online banks

As can be seen in the data, savings account rates at all three institutions have been rising, with the largest increases occurring in 2018.

Online Savings Account Rates Continue to Dominate

The average savings account rates at B&M banks and credit unions have risen significantly, but they’re still much lower than the average rate at online banks. As of September 15, 2018, the average savings account yield at online banks is 1.35%, which is almost 6x the yield at B&M banks (0.23%).

Online savings accounts with rates much higher than the online average are readily available.

The highest nationally-available online savings account yield is 2.25% as of 9/24/18. This is up 60 basis points from early January when the highest yield was 1.65%.

Even the large and well-established online banks are offering savings account rates that are much higher than the online average. On December 29, 2017, I reviewed the 10 top savings accounts from the large internet banks with assets above $10 billion. The average yield of those 10 online savings accounts was 1.33%. The average yield of those top 10 has increased to 1.81% as of 9/24/18.

You can find the highest rates by using our savings account table and money market table.

Large Banks Launch New Online Savings Accounts

Fueling the acceleration of online bank yield increases have been new online savings accounts launched in 2018 by several large banks. Examples of these banks, the new online savings accounts and their yields as of 9/24/18 are as follows:

  • 2.11% APY at Vio Bank, division of MidFirst Bank, $15.4 billion in assets
  • 2.10% APY (Agility Savings) at CIBC Bank USA, $26.4 billion in assets
  • 2.01% APY at HSBC Direct, part of HSBC Bank USA, N.A., $178.6 billion in assets
  • 2.00% APY at Citizens Access, division of Citizens Bank, N.A., $123.9 billion in assets
  • 1.70% APY (Premium Savings) at E*TRADE Bank, $49.1 billion in assets

In July of this year, Citizens Bank launched a new internet division called Citizens Access.

Both MidFirst Bank and CIBC Bank introduced new versions of their online savings accounts. MidFirst Bank’s new online savings account is under its new Vio Bank internet brand. CIBC Bank didn’t create a new internet brand, but it gave its online savings account the name CIBC Agility Savings.

This year HSBC Bank decided to bring back HSBC Direct with a competitive online savings account rate, while E*TRADE Bank decided to introduce a new online savings account called the Premium Savings Account.

In the years between 2005 and 2009, HSBC Bank via HSBC Direct and E*TRADE Bank used to offer online savings accounts with very competitive rates. As the zero interest rate environment took hold, HSBC’s online savings account rate fell to near zero while other online savings rates held up much better. E*TRADE Bank decided in 2009 to shrink its banking business due to large mortgage-related losses during the housing crisis. First, the rate of its popular online savings account, the Complete Savings Account, became uncompetitive in 2009. Then in 2010, E*TRADE arranged with Discover Bank to transfer Complete Savings Accounts to Discover Online Savings Accounts for customers without E*TRADE brokerage accounts.

Competition and Fed Rate Hikes Pushing Up Online Savings Account Rates

A strong economy should keep the Fed on track for further gradual rate hikes. The strong economy in itself encourages higher deposit rates as increased economic activity spurs loan growth which requires deposit growth. Also, a strong economy helps stock market performance which encourages investors and savers to move money from deposit accounts into stocks. The need for deposits spurs competition which further drives up deposit rates.

We are well into a rising interest rate environment, especially at online banks. However, deposit rates will vary greatly. Many banks, especially the large B&M banks, continue to keep their rates low hoping that inertia will prevent most of their customers from moving their money. Consumers who shop around for the best rates and who embrace online banks will be able to benefit the most from higher interest rates.

To review the top Savings and Money Market rates, both nationwide and state specific, please refer to our Savings Account rates table and Money Market Account rates table.

Related Pages: banking tools and data

Comments
9832
9832   |     |   Comment #1
The trend of rising savings/mm rates are very welcome, but the traps and limitations placed on those accounts by some institutions makes those accounts unsavory no matter how sweet a deal the rate may be. I for one cringe when I see the "new money" demand, holds on deposits, cryptic terms, and hidden or missing disclosures left to interpretation.
FEDsStatements
FEDsStatements   |     |   Comment #2
Ken, you wrote:
"""Competition and Fed Rate Hikes Pushing Up Online Savings Account Rates
A strong economy should keep the Fed on track for further gradual rate hikes. The strong economy in itself encourages higher deposit rates as increased economic activity spurs loan growth which requires deposit growth. Also, a strong economy helps stock market performance which encourages investors and savers to move money from deposit accounts into stocks. The need for deposits spurs competition which further drives up deposit rates."""
Isn't that catch 22 circle, the FEDs are telling us how much is the GDP, the FEDs are telling us what the inflation rate is, the FEDs are telling us what the official employment/unemployment rates are, the FEDs are dictating the rates raise/fall.
Who controls the FEDs, nobody, under unofficial numbers, they have printed over $400 trillions since inception and have given the money to the world bank, IMF, foreign governments and the treasury, I wonder, would there will ever be a body in USA to stop the FEDs of destroying the dollar. The more interest we receive on the savings, the more debt is created (it has to be in the balanced books somewhere). Who pays for the higher interest? Are we paid from future IOUs on the debt or the FEDs are recycling the old debt with a twist or money are created behind our backs?
I did read quite few 10-Q filings at the SEC web sites about the banks, it seams they do not cover the higher interest with loans issued, the savings are 3-5 times larger in volumes than the loans generated.
I think the FEDs have hidden agenda, it remain to be seen in near future.
barry_NY
barry_NY   |     |   Comment #3
First, investors do not move money into the stock market. When you buy a stock, your money gets moved into some other person;s bank account. when you sell a stock, their money goes into your bank account. Only the Fed creates or destroys money when they buy or sell assets.
What's driving up bank rates is not so much the Fed raising rates, but the Fed allowing bonds to "fall off" the balance sheet which literally makes money disappear from bank accounts.
This is why it took so long for yields to respond to rate increases. Yields only jumped when the balance sheet was reduced.

The Fed did have an agenda, her name was Janet Yellen. That is how money got sent to foreign governments. Sometimes air lifted on pallets as appeasement payments.
Bonds
Bonds   |     |   Comment #4
barry_NY, this time around the bonds did not fall off in value, actually all corporate, municipal and state issued bonds went up in values in parallel with the stocks, there got to be something else at play. I have munis and they are all at $103-$108 per bond and I bought them at par. I have corporate bonds at Chase and BofA, all of them are still up from the level I bought them 5 years ago. I have preferred stock too (interest rates sensitive), they are about at same level as I bought them few years ago before the FEDs starting to raise the rates. How do you explain that?
Att
Att   |     |   Comment #6
I just had a 4.5% muni bond called. The rates for bonds on the secondary market are low. I have another bond paying 5.75% that is callable in December. I know that one will be called.

My bonds are all valued above par. Unless one sells (and get someone to buy your bond) will you be able to realize the gain on the bonds value above par. If the bond is called or matures you will only get par value ($100).
Reply to Att
Reply to Att   |     |   Comment #7
Att #6, you said: "If the bond is called or matures you will only get par value ($100)."
That is the whole point, the bonds are irrelevant to the interest rates if you bought them for income and not trading, your principal is save and most people get secondary insurance on the bonds (just in case) should something happen to the bonds issuer(s).
Att
Att   |     |   Comment #10
#7 Most bonds do not have insurance. Some of the bonds that I had a few years ago would actually pay over par (In most cases $101) if they were called. Some people may need to sell their bonds early and my get more or less than par on the secondary market. If you invest in bond funds they may even trade bonds that are sold above or below par and can affect the value of the fund.

Also, "people" don't get insurance on muni bonds, the issuer buys the insurance from a company like MBIA so they can use the bond companies rating which is usually higher than the issuer and to make their issuers bonds more attractive.
Muni-Insurance
Muni-Insurance   |     |   Comment #13
#10, I guess you had no chance to read these facts about muni insurance, please do it now:

http://www.munibondadvisor.com/BondInsurance.htm

and this:

https://www.blog.invesco.us.com/insured-municipal-bonds-may-offer-added-security-for-investors-2/
Att
Att   |     |   Comment #16
You need to reread your links. As I stated in my reply to #7 he stated that "people get secondary insurance on bonds" which is not true. The issuing government or agency purchases the insurance on muni bonds.

Also, most bonds are not insured.

By paying a premium to a municipal bond insurer at the time a bond is issued, GO and revenue bond issuers have been able to "enhance" the issue's credit quality. This increases investor demand for the bonds in both the initial underwriting process and secondary trading market.

Read more: Fatal Seduction Of The Municipal Bond Insurers https://www.investopedia.com/articles/bonds/08/municipal-bond-insurance.asp#ixzz5SCkxncc9
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#17 - This comment has been removed for violating our comment policy.
#18 - This comment has been removed for violating our comment policy.
cumulus
cumulus   |     |   Comment #5
Thank you Ken for another useful, insightful view of this topic.
saveriffic
saveriffic   |     |   Comment #8
I have been using online savings since before the housing crisis. Remember Trade Bank's 5.05%? I'm glad rates are finally climbing for small savers. If Marcus by Goldman Sachs would offer a checking account then I would ditch my old B&M for good.
saveriffic
saveriffic   |     |   Comment #9
Typo above: I meant to write E-Trade Bank from about 2005 for that 5.05 rate.
Fan_of_website
Fan_of_website   |     |   Comment #11
Good article. It might be useful to also show changes in the federal funds rate on the savings charts above as a visual comparison; this would illustrate just how terribly consumers are being treated by these institutions.

Providing better education and awareness about other banking opportunities might encourage more individuals to move some funds away from the major banks (which pay next to nothing), thus motivating them to raise rates to remain competitive. This is a reason for all of us to promote sites like DA which highlight the benefits of being proactive in banking decisions.
DCGuy
DCGuy   |     |   Comment #12
The four biggest banks in the nation (the banks too big to fail) - Chase, Bank of America, Wells Fargo, and Citibank all have not budged on their savings/checking rates. They got so much money that they do not have to compete with the "small fry". Citibank did start an online bank division in the early 2000s. I had an e-checking account with Citibank that was paying 5% in 2006. Later, Citibank closed the online division.
Big Four banks
Big Four banks   |     |   Comment #14
#12, why should they, the FEDs are feeding them billions upon billions at a whim for almost free, should they need the money for any project or issuance of any instruments. They are completely isolated from the public.
Nothing
Nothing   |     |   Comment #15
4. Conflicts disqualify them...and YOU should know this!
Anon123
Anon123   |     |   Comment #19
Speaking of big banks - PNC just rolled out a 2.20% online savings:
https://www.pnc.com/en/personal-banking/banking/savings/high-yield-savings.html#

No minimum balance, $5 million maximum.
From what I could tell, it is only offered in zip codes where PNC does not have branches.
dollarsncents
dollarsncents   |     |   Comment #20
PNC is one of the worst banks that I have ever dealt with. It was years ago, but I vowed I would never go back to PNC again.
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