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A lot of people asked me this question in last Wednesday’s AMA*. I’m a HUGE advocate of moving your money out of savings accounts offering 0.01% APY (which is a lot of them, FYI). My advice used to be to find an account offering at least 1.00% APY and then it got bumped up to 1.5% APY and then, in the last few months, 2.00% APY or more!! The competition to have the highest interest rate on savings accounts really was really heating up, mostly amongst the Internet-only banks.
(Before I repeat “APY” one more time — that’s annual percentage yield but in layman’s terms, just think interest rate.)
I know people aren’t getting rich off moving their money from a savings account offering 0.01% to 2.00%, but let’s say you have $5,000 in an emergency savings fund just sitting around. Wouldn’t you rather earn $100 in interest (by doing absolutely nothing) than a measly fifty cents?! Seriously, $0.50 compared to $100 and all you have to do is move your money into a new savings account.
The rates on savings accounts were gloriously trending upwards, and then the Federal Reserve decided to decrease it’s benchmark interest rate for the first time since the Great Recession, which had made some people nervous. And if you ever thought “eh, that stuff doesn’t really impact me directly” this is how you know that’s not true.
As a response to the Fed’s decision, some banks started to lower the interest rates on its savings accounts. Notably, Ally dropped from 2.20% to 2.10% and now to 1.90% and Marcus by Goldman Sachs dropped from 2.25% to 2.15%. [Editor’s note on October 21, 2020: Rates have continued dropping to as low as .60% APY with both Ally and Marcus, which is all still better than 0.01%, but hopefully we see an improvement in the coming years when the economy improves.]
While it’s frustrating to see a drop, just remember that it’s not only still higher than just a couple years ago but waaaaaaay better than leaving your money sitting at 0.01% APY. (And if that’s the interest rate on your savings account, it’s time to switch!).
*I do a weekly Ask Me Anything on Instagram!