How MagnifyMoney Gets Paid

Advertiser Disclosure

College Students and Recent Grads

Top Checking Accounts for College Grads

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

Written By

For many college students, their default banking option while in school is a student checking account, which is typically free. Unfortunately, when you graduate you lose those benefits. Many student checking accounts will begin to charge you monthly maintenance fees unless you meet certain requirements.

So, where do you go from there?

Few young adults would turn to their parents for fashion or dating advice and, yet, one of the most common ways we’ve found young people choose their bank account is by going with whichever bank their parents already use. This could be a bigger faux pas than stealing your dad’s old pair of parachute pants.

The bank your parents use may carry fees or have requirements that don’t meet your lifestyle or budget, and make accounts expensive to use.

But where do you even begin to choose the right checking account?

When you’re nearing graduation, start planning your bank transition.

Many banks send a letter in the mail a few months prior to your expected graduation date informing you that your student checking account is going transition to a non-student account. If you’re not careful and you disregard the letter, you may be transitioned into an account that charges a fee if you don’t meet certain requirements.

You can always call the bank and ask to switch to a different account or you can choose a new account that offers more benefits, like interest and ATM fee refunds.

Account Name

Minimum Monthly Balance

Amount to Open

ATM Fee Refunds

APY

Chime $0$0NoneNone
Axos Bank Rewards Checking$0$50Unlimited domestic Up to 1.25% APY if requirements are met
Discover Bank$0$0NoneNone, but 1% cash back on up to $3,000 debit card purchases per month
Ally Bank$0$0Up to $10 per statement cycle 0.10% to 0.25% APY depending on balance
La Capitol Federal Credit Union Choice Plus Checking$0(if less than $1,000, there is a $8 fee)$50Up to $25 per month4.25% APY on balances up to $3,000 2.00% APY on balances $3,000-$10,000 and 0.10% on balances over $10,000
Consumers Credit Union (IL) Free Rewards Checking$0$5Unlimited ATM reimbursementsUp to 4.09% on balances up to $10,000,
0.20% APY on balances between $10,000 and $25,000 and 0.10% APY on balances over $25,000
T-Mobile Money$0$0None4.00% APY on balances up to $3,000, 1.00% APY after that
Evansville Teachers Federal Credit Union Vertical Checking$0$25Up to $15 in ATM reimbursements per month 3.30% APY on balances up to $20,000

The 5 key things you should look for in a checking account

When you’re shopping around for a new checking account, there are several things you should look for to ensure you’re getting the most value from your account:

  1. A $0 monthly fee: Sometimes banks may say they don’t charge a monthly fee but read the fine print — they may require a minimum monthly balance in order to avoid it. There are plenty of free checking accounts available for you to open, so there’s no reason to stay stuck with an account that charges a monthly fee. Take note, as some accounts may require you to meet certain criteria to maintain a free account like using a debit card, enrolling in eStatements or maintaining a minimum daily balance.
  2. No minimum daily balance: Accounts without minimum daily balances mean you can have a $0 balance at any given time. This may allow you to have a free account without meeting balance requirements — although other terms may apply to maintain a free account.
  3. Annual Percentage Yield: APY is the total amount of interest you will earn on balances in your account. Opening an account that earns you interest on your balance is an easy way to be rewarded for money that would typically sit without earning anything. You should definitely aim to earn a decent APY on your savings account.
  4. ATM fee refunds: You may not be able to access an in-network ATM at all times, so accounts providing ATM fee refunds can reimburse you for ATM fees you may incur while using out-of-network ATMs. Those $3 or $5 charges add up!
  5. No or low overdraft fees: Most banks charge you an overdraft fee of around $35 if you spend more money than you have available in your account. Therefore, it’s a good idea to choose an account that has no or low overdraft fees.

Top overall checking accounts for college grads

For the top overall checking accounts, we chose accounts that have no monthly service fees, no ATM fees, refunds for ATM fees from other banks, interest earned on your deposited balances and with strong mobile banking apps. While there is no all-inclusive account that contains every benefit, the accounts below are sure to provide value whether you want a high interest rate, unlimited ATM fee refunds or 24/7 live customer support.

1. Chime

The Chime Spending Account boasts an array of features that will likely benefit young adults who are just learning how to manage their money — including fee-free overdrafts up to $100, early direct deposit, no monthly fees and no minimum balance requirements. Additionally, Chime offers the option to round up each transaction and deposit the difference into your linked savings account.

Note that Chime is not a bank itself — it’s a financial technology company — but it provides its banking services and FDIC insurance by partnering with the Bancorp Bank or Stride Bank.

2. Axos Bank Rewards Checking

The Axos Bank Rewards Checking account is a great option for college grads, as it offers low fees and generous rewards. There are no monthly service fees, no overdraft fees and unlimited reimbursements for domestic ATM fees. Currently, you also can earn an APY up to 1.25% if you meet the following requirements:

  • Receive monthly direct deposits totaling $1,000 or more
  • Use your Axos debit card at least 15 times per month

3. Discover Cashback Debit

Cracking our list for the best checking accounts for college graduates is Discover Bank, which takes a unique approach to checking account rewards. Instead of offering an APY on deposit balances, Discover opts for cash back as an incentive to get consumers to sign up for its checking product. The Discover Cashback Debit account offers up to 1% cash back on $3,000 of debit card transactions per month. That coupled with its zero fees and free access to 60,000 ATMs nationwide make it one of the best checking accounts for college graduates.

4. Ally Bank

Online bank Ally Bank offers a solid checking account with minimal fees, decent APYs and other attractive perks. Its Interest Checking account charges no monthly maintenance fees and provides free access to Allpoint ATMs nationwide, as well as a $10 reimbursement per statement cycle for any other ATMs fees incurred. Ally Bank’s APY isn’t too shabby, either: You can earn an APY of 0.25% with a $15,000 minimum balance or 0.10% with balances under $15,000. Other cool features include its Ally Skill for Amazon Alexa, which enables you to transfer money with just your voice.

Top high-yield checking accounts for college grads

Since most checking accounts offer little to no interest, high-yield checking accounts are a great way for you to maximize the money that typically would just sit in your account without earning interest. These accounts often offer interest rates that fluctuate depending on how much money you have in the account. However, in order to earn interest, there are some requirements that you may have to meet such as making a certain number of debit card transactions and enrolling in eStatements.

1. La Capitol Federal Credit Union Choice Plus Checking

This checking account has a $2 monthly service fee, which can easily be waived if you enroll in eStatements.

While the terms state a minimum balance requirement of $1,000 and a low balance fee of $8, the fee can be waived if you make 15 or more posted non-ATM debit card transactions per month.

To earn the top interest rate on your checking balance, you just need to make at least 15 or more posted non-ATM debit card transactions per month. There are numerous surcharge-free La Capitol ATMs for you to use, and after signing up for eStatements you can receive up to $25 per month in ATM fee refunds when you use out-of-network ATMs.

SEE DETAILS Secured

on La Capitol Federal Credit Union’s secure website

NCUA Insured

2. Consumers Credit Union (IL) Free Rewards Checking

The Consumers Credit Union (IL) Free Rewards Checking account is just that: Rewarding. It offers a tier-based APY, which includes a 4.09% APY on balances up to $10,000, 0.20% APY on balances between $10,000 and $25,000 and 0.10% APY on balances over $25,000. In order to earn the highest APY, you must complete at least 6 signature-based debit purchases receive at least one direct deposit, ACH debit, or pay one bill through their free bill payment system totaling $500 or more, log into your online banking account and be signed up for eStatements and spend $1,000 or more with a Consumers Credit Union Visa credit card each month. This account has no fees and offers unlimited ATM reimbursements if requirements are met.

3. T-Mobile Money

Wireless carrier T-Mobile has forayed into finance with a checking account, T-Mobile Money. The account offers a generous APY of 4.00% on balances up to $3,000, with balances over that threshold earning 1.00% APY. In order to receive the higher APY, you must meet the following requirements: Be enrolled in a qualifying T-Mobile wireless plan, be registered for perks with your T-Mobile ID and have deposited at least $200 in qualifying deposits to your checking account within that current calendar month. T-Mobile Money does not reimburse for out-of-network ATM fees, but it does not charge any maintenance fees.

4. Evansville Teachers Federal Credit Union Vertical Checking

Evansville Teachers Federal Credit Union’s Vertical Checking account doles out a generous APY of 3.30% on balances up to $20,000 if you meet the following requirements per month:

  • Make at least 15 debit card purchases
  • Make at least one direct deposit
  • Make at least one online or mobile banking login
  • Receive electronic statements

This account boasts a low, minimum opening deposit of just $25 and no monthly service fee, as well as up to $15 in ATM fee reimbursements per month.

How MagnifyMoney Gets Paid

Advertiser Disclosure

Banking

What Is a Cash Management Account?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

Written By

Actions have consequences. Staying up too late will turn you into a zombie at work the next morning, eating ice cream for breakfast will force you to buy new jeans — and placing your money in a conventional checking or savings account could yield a piddling amount of interest.

The internet hasn’t found a way to circumvent the biological necessities of sleep and a healthy diet — yet — but it can empower banks and financial institutions to offer accounts with high APYs, all while providing the ease-of-access and convenience of a checking account. In the evolving world of online banking, these are usually called cash management accounts, and you need to know more about them.

You may have read about cash management accounts. They go by a variety of names: hybrid checking, hybrid accounts, cash management vehicles. Like many consumer financial products, readers may be a bit unclear about how these accounts actually work — and to start, note that they are very different than the “cash management accounts” offered by certain online stock brokerages.

Let’s get to the heart of the matter by defining what these new accounts are and whether they’re right for you and your money.

What is a cash management account?

Whatever the name, a cash management account combines the high yield of a savings account or certificate of deposit with the accessibility of a checking account.

With some of the accounts reviewed below — like Aspiration’s Spend and Save — the product actually consists of a checking account (which typically earns little to no interest) linked with a savings account (which earns a pretty decent APY) and features instantaneous, unlimited transactions between the two. Others — like Radius’ Hybrid Checking — comprise a single checking account earning a high APY, minus all the usual requirements typical of a traditional high-yield checking account.

While cash management accounts consisting of both a checking and savings account earn some of the highest APYs, you need to watch out that you don’t keep the majority of your funds in the checking or spending portion — where it earns minimal interest. Because transferring funds between the checking and saving portions happens instantly and doesn’t come with any limits, this is an easy mistake to avoid.

The boundary between “cash management account” and “high-yield checking” account can be hazy, but they share the following characteristics that place them in the “cash management” category.

  • Zero fees: One of the more attractive facets of cash management accounts is that most have no monthly maintenance fees (or only charge a small amount). This helps differentiate them from high-yield checking accounts, many of which require users to meet multiple specific requirements each month or pay maintenance fees in order to earn the high APY.
  • A higher APY than your typical checking account: According to DepositAccounts.com (like MagnifyMoney, it too is owned by LendingTree), the average APY a checking account earns is 0.110%. Traditionally that’s been seen as the trade off depositors make with banks in order to have easy, everyday access to their funds. The cash management accounts we review here represent true hybrid accounts that combine the liquidity of checking accounts with the high interest rates of savings accounts. All of them offer a much higher APY than the average checking account and, in many cases, higher than the interest earned in many savings accounts.
  • They’re online accounts, mostly: The institutions offering cash management accounts mostly exist as ones and zeros on the web. Some of these companies, like Aspiration, aren’t even banks themselves, but have partnered with traditional banks to provide customers with their services.

How do cash management accounts earn so much interest?

While the particulars vary from account to account, the principal underlying cash management account combines a traditional checking and savings account in one instrument — you deposit money with a bank or institution, where it earns interest. The financial institution then takes a cut of that interest in order to make money, and passes the rest on to you (which is reflected in the interest that particular account earns).

Because banks prefer customers to deposit as much money as possible for an extended period, they usually give accounts and products that limit customers’ ability to withdraw their cash higher interest rates in order to incentivize depositors into using those products.

Average Checking Account APYAverage Savings Account APYAverage 1 Year CD
APY
Average 5 Year CD
APY
0.110%0.154%0.409%0.791%

As you can see from the chart above — this data comes from DepositAccounts.com — the more liquid your account, the less interest it earns for you. Checking accounts, which provide almost unlimited access to your money, earn the lowest APY on average. Certificates of deposit with a five-year term, which usually come with a steep financial penalty if you withdraw the money before the term is up, provide the highest interest, on average.

So how do the companies offering cash management accounts bypass this norm to offer customers high interest rates on accounts with little to no restrictions on withdrawals? A big part of the answer is their low overhead, thanks to their online-only operations.

Megabanks like Chase employ thousands and maintain a sprawling network of physical locations, while an online-only institution like Aspiration, offering the Spend and Save cash management account, might have only a few dozen employees on its payroll.

“Because we’re online-only, it helps us pass on those kinds of savings to our customers,” said Andrei Cherny, CEO of Aspiration.

Management Fees

0.25%

Account Minimum

$0

Promotion

Three months free for new customers who are referred by an existing Betterment account holder

Management Fees

0.89%

Account Minimum

$100,000

Promotion
N/A
Management Fees

0%

Account Minimum

$100 one-time deposit or $20 monthly deposit

Promotion
N/A

Where does my money go when I deposit it into a cash management account?

Since many of the institutions offering cash management accounts lack the extensive infrastructure of traditional banks, you may be wondering where your money is actually deposited with these accounts.

The answer is that they partner with a bank (or a series of banks) to manage your funds. At the end of the business day, the money in your cash management account is swept into one of these participating bank’s accounts, where it enjoys the normal protections provided by FDIC accounts.

This information should all be disclosed to you when you open a cash management account, and if it’s not you should hesitate before placing a large amount of money in the account.

“As with anything, read the fine print,” said Jonathan Chapman, CFP at WJ Interests based in Sugar Land, Texas. “Look under the hood to see what banks they partner with to ensure they are working with quality institutions.”

Customers should also keep an eye on the individual FDIC-insured accounts where your money is swept at the end of the day. Make sure none of the balances exceed the insurance’s limit ($250,000) — otherwise, the portion of your balance that’s greater than $250,000 is at risk of being uninsured.

The potential pitfalls of cash management accounts

The high interest rates offered by these accounts make them attractive to customers who want their money to grow at a decent rate while still remaining accessible, but they’re not for everyone. Because most of these hybrid accounts are offered by online-only banks or institutions, customers have to feel comfortable banking with a company that may lack decades of history — especially if they’re already accustomed to doing business with another bank.

“As an advisor, my most difficult work is to get people to follow through on my recommendations,” said Jayson Owens, CFP at Bright Road Wealth Management based out of Anchorage, Alaska. “To accomplish this, I rarely recommend changes to a primary checking account. The cost in time typically outweighs the benefit of the change.”

Another related concern customers may have about these cash management accounts is if the companies offering them will stick around for the long haul. “Clients may not lose money but the company may get acquired or shuts down which would cause unnecessary hardship,” said
Deva Panambur, CFA and CFP at Sarsi, a wealth management company based in West New York, N.J.

While you’re not going to be able to waltz into the CEO’s office and demand a look at his five-year plan, you should take into account your gut reaction to how a company offering a cash management account presents itself and whether it has a viable shot at longevity.

The best cash management accounts

Account nameAPY earnedMinimum balanceMonthly Maintenance Fee
Betterment Cash Reserve 0.40% $0$0
Wealthfront Cash Account0.35% APY on the entire balance$1$0
SoFi Money0.25% APY on the entire balance if you have $500 or more in recurring, monthly deposits$1$0
Radius Rewards Checking Account0.15% APY on balances of $100,000 and greater; 0.10% APY on balances between $2,500 and $99,999.99$100,000 to earn the highest APY; $2,500 to earn 0.10% APY$0
Aspiration Spend and SaveUp to 1.00% APY on balances up to $10,000; 0.10% on balances over $10,000$1,000 spent monthly on debit card to earn 1.00% APY or rate drops to 0.10% $15 for Aspiration Plus in order to receive the APY

Betterment Cash Reserve

Betterment’s Cash Reserve account promises an APY of 0.40%. You can also opt to open a checking account, which they offer through a partnership with nbkc bank.

Because money in the Cash Reserve account is held by several program banks, customers enjoy FDIC protection up to $1 million. There’s no limit to the amount of times you can transfer money in and out of your Cash Reserve account (unlike a traditional savings account at a bank) but it does take 1-2 business days for Betterment to process these transfers.

SEE DETAILS Secured

on Betterment’s secure website

FDIC Insured

Wealthfront Cash Account

This robo-advisor offers savers a cash management account that earns 0.35% APY and doesn’t require you to open an investment account. Because Wealthfront sweeps the money you deposit in the cash account into several partner bank accounts, your money is FDIC insured up to $1 million, a selling point for those wanting large balances to receive the maximum protection.

SEE DETAILS Secured

on Wealthfront’s secure website

FDIC Insured

SoFi Money

Though it’s probably better known for its mortgages and student loans, this online-only investment firm has staked a claim in consumer banking by offering its Money account, which offers a 0.25% APY. SoFi doesn’t require depositors to maintain a minimum balance in this account in order to earn that interest rate, but you will need $500 in monthly deposits; otherwise, that rate drops to 0.01%. Account holders also get additional goodies like fee-free Allpoint ATMs worldwide.

SEE DETAILS Secured

on SoFi’s secure website

Radius Rewards Checking Account

Radius Bank is a community bank headquartered in Boston. The Radius Rewards Checking account is free, as long as you open the account with the required deposit of $100. Because the Rewards account offers their interest rate for a checking account without saddling the customer with a laundry list of requirements — like a number of debit transactions required each month — Radius’ account joins the list of best cash management accounts.

Aspiration Spend and Save Account

Aspiration has packaged together a savings account and a checking account into a single consumer product allowing users to move their money between both portions instantly and as many times as they wish. Users should be careful not to leave the majority of their funds in the checking portion, which owns zero APY. Instead most of the money should live in the savings account, where it can earn the 1.00% APY the company advertises so prominently. To get that APY, you’ll need to upgrade from the base account to Aspiration Plus for a monthly fee of $15. You’ll also need to make at least $1,000 in purchases on the debit card per month or the rate drops to 0.25%, and balances over $10,000 earn 0.10%.

With Plus you get a few extra perks. You’ll earn more cash back on your socially conscious purchases, get one out-of-network ATM fee refunded per month, and be eligible for their Planet Protection program, which aims to offset the carbon footprint you leave by gassing up your car. Again, you can move your money between both parts of the Spend and Save account instantly, so having most of it in the savings portion shouldn’t slow you down during a shopping spree; however, it’s important to note in case you get careless and leave a big chunk of change in the spending portion, where it earns no interest.

SEE DETAILS Secured

on Aspiration’s secure website

How MagnifyMoney Gets Paid

Advertiser Disclosure

Best of

The Best IRA Savings Accounts

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

Written By

Reviewed By

Saving enough for retirement remains a daunting goal for many Americans. A 2018 survey by financial services company Northwestern Mutual found 41% of respondents worried about their retirement savings. Individual retirement accounts (IRAs) can help keep your blood pressure down by providing you with a powerful savings tool for retirement with significant tax advantages.

While you may associate IRAs with investing in stocks and bonds, one of the safest places to open an IRA is with a bank or credit union in the form of a savings or money market account. The list of IRA savings accounts below are the best for earning a high interest rate on your savings while keeping your future nest egg secure.

The top 10 IRA savings accounts of January 2021

Account

Minimum opening deposit

APY

Patelco Federal Credit Union Money Market Select IRA (Traditional, Roth, CESA)

$1

2.00%

Premier Members Credit Union IRA Money Market Account (Traditional, Roth)

$5

2.00%

Latino Community Credit Union IRA Share Account (Traditional, Roth, SEP)

$25

1.26%

All America Bank

$100

0.85%

Connexus Credit Union IRA Savings (Traditional, Roth, CESA)

$0

0.75%

Communitywide FCU IRA

$2,000

0.70%

Signature Federal Credit Union IRA Savings (Traditional, Roth, CESA)

$0

0.70%

Alliant Credit Union IRA Savings (Traditional, Roth, SEP)

$0

0.55%

Ally Bank IRA Online Savings Account (Traditional, Roth, SEP)

$0

0.50%

Lake Michigan Credit Union (Traditional, Roth)

$5

0.50%

Patelco Federal Credit Union Money Market Select IRA (Traditional, Roth, CESA) — APY 2.00%, minimum deposit $1

Just as Premier’s rate is dependent on the size of your deposit, Patelco Federal Credit Union also steps down its APY the more money you have invested; the rate begins dropping after $2,000. Patelco is based in California, and you’re eligible to join if you live, attend school or worship in certain California communities. Students at a few universities also qualify, as do employees of one of their member companies and associations. If none of these apply to you, you can also join by becoming a member of the nonprofit Financial Fitness Association, and your first year is on the credit union.

SEE DETAILS Secured

on Patelco Credit Union’s secure website

NCUA Insured

Premier Members Credit Union IRA Money Market Account (Traditional, Roth) — APY 2.00%, minimum deposit $5

Premier Members Credit Union is the merged company formed by two well-established credit unions: Boulder Valley Credit Union and Premier Members Federal Credit Union. It caters to residents of Colorado, but you can also join through their affiliation with Boulder Valley School District’s charity Impact on Education. It’s worth noting that you’ll only earn this high APY on your first $2,000. After that, the rate drops down in tiers.

SEE DETAILS Secured

on Premier Members Credit Union’s secure website

NCUA Insured

Latino Community Credit Union IRA Share Account — 1.26%, minimum deposit $25

This North Carolina credit union offers its banking products to anyone in the nation so long as they make a one-time $10 donation to the Latino Community Development Center, a nonprofit promoting financial literacy and general economic development “for low-income Latino and other immigrant communities in North Carolina,” according to its mission statement.

The credit union offers an IRA share account — their version of a savings account — with either a Traditional, Roth or SEP plan. The account requires a minimum deposit of $25 and currently earns an APY of 1.26%.

SEE DETAILS Secured

on Latino Credit Union’s secure website

NCUA Insured

All America Bank Variable IRA — APY 0.85%, minimum deposit $100

This Oklahoma-based bank makes its accounts available to anyone online, and those looking for an IRA savings account earning a high APY should take a look. While this bank doesn’t offer some of the more specialized IRAs that others do, All America Bank provides the tried-and-true traditional and Roth IRAs for a modest minimum deposit of $100.

Connexus Credit Union IRA Savings — APY 0.75%, minimum deposit $0

Membership at Connexus Credit Union is open to employees, retirees, students and alumni of a small list of groups, as are their family members. Residents of a few communities are also eligible. But for everyone else, all you need to do to join is make a $5 donation to the Connexus Association.

Connexus offers traditional and Roth IRAs. There’s no minimum opening deposit needed to secure this rate on balances up to $2,000, but the more you have to contribute, the more you’ll earn. In fact, balances of $10,000 and over will get you a rate that would come in third on this top 10 list, and even balances between $2,000 and $10,000 will get you close to the top 3.

SEE DETAILS Secured

on Connex Credit Union’s secure website

Communitywide Federal Credit Union IRA — 0.70% APY, minimum deposit $2,000

Anyone can become a member of Communitywide FCU by joining the Michiana Goodwill Boosters or the Marine Corps League of St. Joseph Valley. Communitywide offers both traditional IRA and Roth IRA accounts, with a $2,000 deposit needed to open, with dividends paid into the account on a quarterly basis.

SEE DETAILS Secured

on Communitywide Federal Credit Union’s secure website

NCUA Insured

Signature Federal Credit Union IRA Savings — 0.70% APY, $0 minimum deposit

Membership in the American Consumer Council qualifies you to join up with this Virginia-based credit union, which offers Traditional, Roth and CESA IRAs. The barrier to funding these IRAs couldn’t be lower—there’s no minimum deposit required, meaning you could open an IRA savings account with the change you find under a couch cushion (though we recommend trying to save more for your retirement). The APY should also entice you, as the interest earned starts to rapidly drop off the further you get down this list.

SEE DETAILS Secured

on Signature Federal Credit Union’s secure website

NCUA Insured

Alliant Credit Union IRA Savings— APY 0.55%, minimum deposit $0

Although based in Illinois, it’s a simple matter for anyone in the country to join this credit union. A $10 donation to Foster Care to Success qualifies you for membership and the ability to take advantage of Alliant’s personal banking products, including their IRA Savings account.

Alliant offers three different plans for its IRA savings: Traditional, Roth and SEP. The APY is 0.55%.

SEE DETAILS Secured

on Alliant Credit Union’s secure website

NCUA Insured

Ally Bank IRA Online Savings Account— 0.50% APY, $0 minimum deposit

Ally may be an online-only bank, but its history stretches back to the beginning of the 20th century as a financial institution that helped automaker General Motors finance sales. In its current iteration, Ally offers a wide range of competitive savings products, including an IRA account that earns an APY of 0.50%. Ally offers three different types of plans: Traditional, Roth and SEP, covering a variety of retirement needs while offering a high rate of return.

SEE DETAILS Secured

on Ally Bank’s secure website

Member FDIC

Lake Michigan Credit Union Money Market Savings — APY 0.50%, minimum deposit $5

You don’t have to belong to any specific industry, company or organization to join Lake Michigan Credit Union. Becoming a member allows you to access all of their products and services and requires only a minimum donation of $5 to the ALS (Amyotrophic Lateral Sclerosis) Foundation if you live outside Michigan or Florida.

Lake Michigan Credit Union offers traditional and Roth IRA plans, with no maintenance fees. The APY is 0.50%.

SEE DETAILS Secured

on Lake Michigan Credit Union’s secure website

NCUA Insured

What’s the benefit of an IRA savings account?

Like any IRA account, an IRA savings account provides tax advantages to the saver. The exact benefits depend on the IRA plan or type you choose. While the two most common types of IRA offered are Traditional and Roth, more specialized versions of the account are also available, including:

  • Simplified Employee Pension (SEP): A type of IRA that can be used by either small business owners on behalf of their employees, or by self-employed individuals, the SEP IRA functions similar to a Traditional IRA — except it has a much higher annual contribution limit. You can contribute 25% of your annual compensation to the plan or $57,000 (whichever is the lesser), and like a Traditional IRA, those contributions are tax-deductible.
  • Savings Incentive Match Plan for Employees (SIMPLE): Another IRA tailored for small-business owners or those who are self-employed, SIMPLE plans allow you to put up to $13,500 of your business net earnings into the account, where the money remains tax-deferred until you start taking your withdrawals.
  • Coverdell Education Savings Account (CESA): This account aids with saving for education costs for those 18 years old or younger, but functions similar to a Roth IRA with more limits. For example, the beneficiary must be 18 years or younger when the account is set up (or be a special needs beneficiary), and you can make a maximum contribution of $2,000 per year. Only those with modified adjusted gross incomes of up to $110,000 ($220,000 if filing a joint return) may make a contribution to the account, and the contributions are not tax-deductible. The beneficiary can use the funds from the CESA for qualifying expenses toward their education.

How does an IRA savings account work?

You can contribute money to your IRA savings account anytime, just as you would with an ordinary savings account. However, because this is an IRA product, it’s still subject to a 2020 contribution amount limit of $6,000 (or $7,000 if you’re age 50 or older), the same as an IRA account at a brokerage firm.

In that same vein, the penalties for withdrawing money early from your IRA remain in effect for the IRA savings account. Taking money from your Traditional IRA savings account incurs a 10% penalty if you’re younger than 59 1/2 years old (and assuming you don’t qualify for one of the special circumstances allowing a penalty-free withdrawal, such as a first-time home purchase).