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1.25% Now The Best Savings Account Rate of 2015

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1.25% Now The Best Savings Account Rate of 2015

Update: As of December 15, 2015 the interest rate has been reduced from 1.10% to 1.00% (it was previously 1.25%).

MySavingsDirect, a division of Emigrant Bank, has just increased the interest rate on its savings account to 1.25%. Banks offering online savings accounts have been in a pricing war recently, and Emigrant Bank has just become very aggressive. This is the best interest rate for a savings account that we have seen in a long time.

Terms Of The Deal

The savings account offers simple terms and conditions. Here is a summary:

  • No minimum balance requirement
  • No minimum deposit requirement
  • No monthly fees
  • You must be at least 18 years old
  • You must have a valid tax identification number (for example, a Social Security number)
  • You must have a legal mailing address in the United States
  • You must have an open checking account with another bank. The existing bank account is used to verify your identity. That same bank account must also be used to fund the account, which can be done with an electronic transfer or a check.

Interest on the account will be compounded daily and paid monthly. The account is FDIC insured, which means that your funds are protected up to $250,000 per depositor.

In short, this is a very simple account with no hidden fees. MySavingsDirect has done a good job of making it easy for people to earn a dramatically higher rate of return on their savings.

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How Good Is This Deal?

1.25% is currently the best interest rate we have found in the market. The pricing war for savings account has been largely ignored by traditional banks, which continue to pay 0.01% on their savings accounts.

Savings accounts are best used for emergency funds, which can be three to six months of living expenses. We have calculated a one year return on a $25,190 savings account below (you can do the calculations and compare savings accounts here):

  • MySavingsDirect: $315 of interest over 12 months
  • Other online banks, at 1.05%: $264
  • Traditional banks (like Bank of America), at 0.01%: $3

The difference between any online savings account and the traditional bricks and mortar banks is dramatic. But with the 1.25% interest rate, MySavingsDirect has started to create a real difference between the online banks. You can now earn an extra $51 by switching to MySavingsDirect, when compared to the closest competitor.

Is It Easy To Open An Account?

Opening an account online is remarkably straight-forward. There are four steps to opening an account, as outlined in the graphic below:

MySavingsDirect

The information you will need to open an account is:

  • Your driver’s license (and the address on your license should match your mailing address)
  • A check from your checking account, so that you can provide your routing number and account number

The best part of an online savings account is the ease of opening an account. In less than 15 minutes, you should be able to open the account, verify your information and initiate a transfer.

Risks To Consider

With an online savings account, you have the opportunity to earn higher interest rates. However, there are some downsides. The biggest downside is that you will not have immediate access to your money in an emergency. If you need to access your money, you will have to transfer the money from MySavingsDirect to your linked checking account. The transfer will be made using the Automated Clearing House (ACH). That means it can take 2-4 business days.

If you want immediate access to your savings account, but still want to earn a higher interest rate, you should only consider internet banks that also offer checking accounts. For example, Ally Bank enables you to open a checking and a savings account. You will have an ATM card and can use that to withdraw money from your savings account at any ATM in the country. In addition, Ally Bank would reimburse any ATM fees charged. The only downside is that Ally Bank pays 0.99% on its savings account, compared to 1.25% at MySavingsDirect. You just have to weigh the importance of immediate access to your savings account versus the higher interest rate that you could earn.

You can find the offers for the best combined checking and savings accounts here, updated daily.

The other risk to consider is that interest rates are not guaranteed. Because this is a savings account, and not a certificate of deposit, the interest rate can be reduced at any time. If you want to lock in a guaranteed interest rate, you will have to sign up for a certificate of deposit. You can see the best CDs here. However, with a CD, you will have restricted access to your funds. If you take the money out of a CD before the term expires, you will have to forfeit some of the interest earned. The amount that you will have to forfeit varies by bank.

Who Is MySavingsDirect?

MySavingsDirect is the internet only bank brand of Emigrants Bank.

Emigrant Bank was founded by Irish emigrants as a mutual savings bank in 1850. It has grown over the years, and now has more than $6 billion of assets and $4.5 of deposits. Emigrant has been rapidly growing its mortgage lending business, and needs to deposit to help fund those lending opportunities. As a result, it created MySavingsDirect to help accelerate growth in deposits.

For a depositor, there are two questions you should ask yourself:

  1. Will my money be FDIC insured?
  2. Does this bank offer reliable customer service?

With Emigrant Bank, you should feel confident in the answer to both questions. The bank has provided FDIC insured deposits since 1934. (You can see its profile at the FDIC) In addition, Emigrant is still a relatively small bank that continues to invest in customer experience and service.

Summary

If you keep your emergency fund in a savings account, you should avoid large bricks and mortar banks. Those institutions are only paying 0.01% on basic savings accounts.

Internet banks offer much better returns. The best return is now 1.25%, offered by MySavingsDirect, the FDIC insured internet bank. There are no fees, no minimum deposit requirements and easy access to your money. The only real downside is that it can take 2-4 business days to receive your money.

If you want instant access to your money, you will have to find an internet bank that also offers a checking account. Right now, the highest interest rate is at Ally Bank, which pays 0.99% on its savings account and offers a free checking account.

Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com

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