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.
Updated on Monday, December 8, 2014
Please note: this post was originally published in December 2014. GE Capital Bank was acquired by Marcus by Goldman Sachs, and the offer detailed on this page is no longer available. You can find the best high yield savings accounts here.
Below is the text of the original text of the story:
You do not need to earn only 0.01% on your hard-earned savings. A price war is heating up with online savings accounts. The bricks-and-mortar banks are ignoring the price war, but that is just further reason for you to ditch traditional banks and let them know that they need to earn your business.
GE Capital Bank today launched a savings account that pays 1.05%, a leading rate. This savings account has:
- No minimum deposit to open
- No transaction fees
- Interest that compounds daily
- 6 withdrawals per statement cycle (that is a federal restriction, which impacts all savings accounts)
- FDIC insurance up to $250,000
- Maximum deposit amount of $1,000,000
They also have a great online user interface. Opening an account only takes a few minutes, and you can easily transfer money from your traditional bank to the online bank. The transfer is an ACH (automated clearinghouse – similar process to when you have a monthly bill payment automatically deducted from your bank account), so it doesn’t cost any money and only takes a few days for the funds to arrive.
Your savings account is the place to park your emergency fund, which is typically 3 to 9 months of living expenses. If you have $25,000 in your savings account, you would earn $262 of interest. If your money were sitting at a traditional bank paying 0.01%, you would only earn approximately $3.
You can compare GE Capital savings account rates to the rest of the market on our savings account page.
Why are savings account interest rates so low?
Market interest rates are low. The Federal Reserve helps to set interest rates, and they are keeping those rates at close to 0%. But that does not mean that consumers need to receive 0% on their savings.
Banks should compete for your deposits. When you make a deposit in a bank, you are providing them with money to lend to other people or companies. That is the purpose of a bank: to take excess fund from savers, and provide that money to borrowers in the form of a loan. Banks are still making good money in their lending business, and interest rates on credit cards are not exactly low. So, banks can compete for your business, if they have to.
Traditional banks, like Bank of America and Wells Fargo, have very large branch networks. They know that consumers are very “sticky.” Sticky means that customers stick with the bank, regardless of the price. If interest rates are lowered, customers don’t go anywhere. In fact, Well Fargo recently bragged that is has $1 trillion of deposits that only costs it 0.1%. So, they are able to use their branch network to borrow money from savers at a very low interest rate. They then use that money to loan to other people. The difference between the interest rate they pay (to savers) and the interest rate they charge (to borrowers) is their revenue.
Some businesses have decided to find a different way of raising deposits. Rather than building large branch distribution networks, which cost a lot of money, they are just taking that savings and putting it into higher interest rates for savers. GE Capital has a huge lending business. Although we may think of GE as a manufacturing business, they actually have a big financing business as well. In order to fund those loans, they need deposits. And their online savings bank is one place where GE raises deposits.
Other players active in this space include Barclays (they have a large credit card business that needs deposits), Ally (who has a large auto lending business) and Synchrony.
In each of these instances, savers have the chance to earn a lot more money by ditching the traditional banks.
The big banks are counting on your stickiness. Don’t make it easy for them to make too much money. Just like any other product, you should shop around for the best rate on your savings. And GE is heating up the price war with a great new offer.