Earn More with a High Yield Savings Account

Earn More with a High Yield Savings Account

Rates on savings and cd accounts are at record lows but doesn't mean you can't do a little better than the average person. Not all banks offer the same rates and with a little bit of shopping you can often find a rate that puts some extra money in your pocket with 0 additional risk. Here's how.

Not all banks offer equal rates. That's because banks have different funding needs and different funding strategies. Banks use their deposits (the money you put into the bank) to fund their loans. If they aren't making a lot of loans, then they don't have a burning need for deposits and often won't pay a lot. Or, if a bank has access to cheaper funds than what they can get from the average consumer. For example banks can often borrow from each other and even the Federal Reserve. If they can get money inexepensively from someplace else, guess what, they aren't going to pay a lot for your money.

But some banks are making a lot of loans, are growing, and don't want to depend on the Fed or other funding sources. Consumer deposits are usually the cheapest, most stable souce of money for a bank. One reason Lehman Brothers failed was because its lenders decided to pull the plug and not provide it with any additional money to finance its operations. Consumer deposit runs on the bank rarely happen now, preventing this kind of problem.

All of this means that just because one bank is offering a low rate, doesn't mean all banks will. Let's look at an example. According to Bankrate, the average 12-month CD is .92% APY. I then went to BestCashCow, where they list the rates for a huge number of online and local banks. The highest online 1 year CD rate is 1.35% APY. For my area in Texas, the highest local rate is 1.75% APY.

That's a pretty big difference. For an extra .80% I'll move my money.

The nice thing also is that sites like BestCashCow list only FDIC insured banks. That means that even though you are getting a higher rate, you aren't taking on any additional risk. The FDIC is very good and prompt about securing your deposits in the case of a bank failure.

The point is you can do pretty good spending a few minutes using the resources available online.

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