The best online savings account will help you save more and give you more financial peace of mind. Let's cover a quick overview of what's impacted savings rates in recent years. And then highlight the best online savings account today.
The stock market was tumultuous in 2018 when the S&P 500 closed down -6.4%. But, the S&P 500 surged 31% in 2019. Then, things were completely uncertain in 2020 due to the global pandemic.
In 2021, the markets came roaring back, vaccines were rolled out, many states reopened their economies, and people started traveling and spending money again. Interest rates have also started to rise again, albeit still at a slow pace.
In 2022, volatility returned, the Fed raised rates, and there was some pullback in the markets. Many people are still anxious about rising inflation and lower expected returns. But the good news is the S&P 500 is still way above 2019 and 2020 levels.
However, there are still plenty of households that are still trying to recover from the economic impacts of the pandemic. And, 2023 is likely going to be another rough year for housing and the stock market. Check out the 2023 Wall Street forecasts for the stock market here. Who knows what other unexpected surprises will be around the corner.
During any time of economic difficulty, cash is king. The best and easiest place to store cash is in an online-only savings account because direct banks pay the highest rates given their lower overhead costs. A high yield savings account lets you earn interest automatically while having fast and convenient access to your money whenever you need it.
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, one of the best online savings accounts has historically been CIT Bank and still is today. I made this conclusion after reviewing dozens of other online savings accounts. Other high yield savings rate banks include Comenity Direct, Ally Bank, and Synchrony Bank.
CIT Bank merged with US Bank in early 2022 and is now a top 20 US bank with $111+ billion in total assets and $90+ billion in total deposits. CIT is also our favorite bank for the highest paying short-term CDs.
The Fed Cut Rates To 0% In 2020, Rose To 4% In 2022, and 5.5% in 2023
In 2020, the Fed finally slashed the Fed Funds rate to 0%. Putting money into savings accounts to earn interest during that period was of no real value. However, things are a lot better for earning more interest today in 2H2023.
Why? The Federal Reserve raised rates multiple times in 2022. As of the November 2, 2022 meeting, the Fed Funds Rate is 3.75-4%. In 1Q2022 the Fed Funds still rate remained low at 0.08% – 0.2%. The 10-year bond yield dropped under 0.6% in 2020, but rose back to around 2% in 1Q2022. Then, by early November 2022, the Fed Funds rate reached 3.75-4% and the 10-year bond yield surpassed 4.14%.
2023 brought even more rate hikes and is in the target range of 5.25 – 5.5% as of 3Q 2023.
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 2023 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.
Best Online Savings Account Relief
At the time, 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.
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 was 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 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 get 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.
Best Online Savings Account Rates For 2023
2022 brought back higher interest rates and better APYs for both savings accounts and CDs. Since you work so hard for your money, protecting it for the long term brings peace of mind. If you're looking for the best online savings account for 2023, our favorite is CIT Bank.
They offer Platinum Savings accounts and Savings Connect accounts that are earning significantly more than both CDs and money market accounts at most banks. With a low $100 minimum opening deposit, a CIT savings accounts offer multiple times more than the national average savings account rate. Plus, there are no monthly service fees to worry about.
Get started today and quickly open a high yield savings account with CIT Bank in just three simple steps.
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.