The best online savings account will help you save more and give you more financial peace of mind.
After a tumultuous 2018 in the stock market where the S&P 500 closed down -6.4%, the S&P 500 surged 31% in 2019. Then things were completely uncertain in 2020 due to the global pandemic.
Now in 2021, the markets are mostly all roaring back, vaccines have been rolled out, many states reopened their economies, and people are traveling and spending money again. Interest rates have also started to rise again, albeit still at a slow pace. However, there are still plenty of households that are still trying to recover from the economic impacts of the pandemic.
During any time of economic difficulty, cash is king. And the best place to store cash is in an online savings account because they pay the highest rests given their lower overhead costs.
The best online savings account for 2021 is CIT Bank. They are currently offering a market-leading savings rate for new customers. The yield changes every month, but it is consistently one of the best online.
The Best Online Savings Account
There are a growing number of direct banks, aka virtual banks or branch-less banks. They tend to have the most competitive interest rates. Amongst them, the best online savings account is CIT Bank. I’ve made this conclusion after reviewing dozens of other online savings accounts. Close seconds include Ally Bank and Synchrony Bank.
Founded in 1908 and based in Pasadena, California, CIT Bank has more than $45 billion in assets, and over $30 billion in deposits. It’s parent company, New York City-based CIT Group Inc. has more than $65 billion in assets. CIT Bank offers both online and mobile banking, and also provides mortgage loans, and business financing for small businesses.
CIT Bank (FDIC #58978) offers FDIC insurance of up to $250,000 per depositor.
The Fed Slashed Rates To 0% In 2020
In 2020, the Fed finally slashed the Fed Funds rate to 0%. Meanwhile, the 10-year bond yield is under 0.6%. As a result, getting an online savings account rate above 0.6% is very attractive.
Below is some background on how I used a best online savings account to help me weather the stock market storm in 2018. I plan to do the same in 2020 and beyond.
When the correction hit in February 2018, I realized my risk exposure was too high for comfort. As a result, I slowly started reducing my stock allocation to about 52% from 70% as stocks recovered into the summer.
But when you reduce your stock exposure during a rising market, you begin to question your decision because you start getting greedy. You start imagining whether you’re missing out on more gains by being too conservative. I was tempted to take on more risk again.
But when I got an e-mail from CIT Bank that they had raised their money market rate to 1.85%, I beat back my greed. Just a year earlier, money market rates averaged well below 1%. I still remember only receiving a 0.1% money market rate circa 2015.
1.85% for a money market rate and 2.25% for a 12-month CD rate was pretty good! As a result, I decided to lock in a 2.25% guaranteed return for 12 months on July 16, 2018 instead of invest it in the S&P 500 or forever tempting FAANG stocks given I live in San Francisco.
Best Online Savings Account Relief
As soon as I bought the CD, I felt a sense of relief. I remember thinking to myself, “Ah hah! Nobody can take away my money now!”
Although I’m only earning about $190 a month in interest income, it just felt so wonderful knowing that not only was I not going to lose money over the next 12 months, but also my $100,000 was at least beating inflation.
Staying Financially Disciplined
If I had invested the $100,000 in the stock market on July 16, 2018, I would have lost $10,000! And at the worst point, I would have lost $14,000.
Instead, I have made a stress-free $1,038 in interest income all thanks to higher interest rates.
Therefore, the next time you look down on a money market or CD account rate, don’t. Not only can a money market or CD account drastically outperform risk assets, they have the added benefit of giving you incredible peace of mind during a downturn.
Time To Lock In Another Win
Ever investor must always decide two things:
1) How to invest their new cash flow
2) How to reposition their existing investments
My goal all year is to use 70% of my cash flow to lock in wins and use the remaining 30% of my cash flow to invest in risk assets. My goal is to always build more passive income so my wife and I can remain stay at home parents to our two young children.
High-yield online savings interest rates are solid because you gets the benefits of the best interest rates out there and more flexibility than say investing in a 10-year treasury bond.
One of my big goals is to buy a larger house. I don’t know when the next deal will be, so I’ve always got to stay liquid. If you have a similar goal, it is huge that money market rates are paying so handsomely now.
To open up a CIT Bank money market account click here. 2021 is all about locking in wins after such a huge bull run since 2009. Once you’ve made tremendous wealth, it’s all about protecting it for the long term.
About the Author
Sam began investing his own money ever since he opened an online brokerage account in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at two of the leading financial service firms in the world. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate.
In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $200,000 a year in passive income. He spends time playing tennis and hanging out with family. He loves writing online to help others achieve financial freedom.
FinancialSamurai.com was started in 2009. It is one of the most trusted personal finance sites today with over 1.5 million organic pageviews a month. Financial Samurai has been featured in top publications such as the LA Times and The Chicago Tribune.