You can still earn competitive yields at online-only banks

Yes, some popular online-only banks have lowered yields this year.

But, in reality, only five of the top 20 accounts at the start of 2024, have done so. What’s more, all five have dropped by, at most, a mere 10 basis points, or 0.10-percent.

So, after 11 Federal Reserve rate increases, and the top savings yield outpacing inflation for more than a year, it’s still a great time for savers – even as a few top banks have lowered yields.

Here are four things savers need to know about the current rate environment.

1. The top savings yield has actually increased this year

Ally Bank and Marcus by Goldman Sachs are among the most popular online-only banks, so both of these banks cutting savings yields this year probably caught the eye of some savers. But the top savings yield that Bankrate tracks is actually higher in 2024 than it was in 2023. Last year the top APY maxed out at 5.40 percent APY. This year, it’s at 5.55 percent APY, according to Bankrate research.

2. A bank lowering an APY a few basis points usually doesn’t mean it’s time to switch banks

Savings accounts generally have variable yields. This means your bank can generally change the yield you’re earning at any time, but typically banks don’t change these too often.

But you can also leave your bank whenever you want.

“The optionality exists both ways,” says Greg McBride, CFA, Bankrate chief financial analyst. “Yes, the bank can lower the interest rate whenever they decide to do so. But you can also pick up your toys and go play in somebody else’s sandbox anytime you decide to. So, if that rate becomes uncompetitive you can easily move your money to a different bank that remains competitive. I don’t view that as a drawback – the fact that the yields can change.”

Some banks do have early closure fees on savings accounts, so it’s good to ask about this fee before opening your account.

Check and make sure you’re still earning the rate of interest you were the previous month when your statement is ready, McBride says. “And if it falls and it’s not competitive, that’s your cue to move the money someplace else.”

3. There hasn’t been a better time for savers in more than a decade

Those Federal Reserve rate cuts that were forecasted for 2024 haven’t happened yet.

“There are yields well over 5 percent, nationally available with low or no minimum deposits. These are literally within reach of everyone,” McBride says. “And it’s ideal for that emergency savings, that we all need.”

Even if, or when, the Fed lowers interest rates, those rates aren’t likely to fall as quickly as they increased from March 2022 to July 2023.

“This one was very quick in that interest rates went up very fast,” says Jill Schlesinger, certified financial planner and business analyst for CBS News. “They’re going to come down more slowly and still you’ve got time to take advantage of what is available in the marketplace. So don’t let this go by,” she adds.

4. CD yields have already peaked, but are still pacing ahead of inflation

The top-five year CD peaked in the current rate cycle at 4.85 percent APY in October 2023. But you can still get a five-year CD yielding 4.5 percent APY. So the time hasn’t passed for a long-term CD to earn a competitive yield, if it’s right for your unique financial circumstances.

“So the way you can think about it is, you look at the mortgage interest rate market as an example, Schlesinger says. “People got really used to having mortgage interest rates at 3 percent. And they thought that those 2.5-, 3-, 3.5- or even 4-percent notes were going to be available forever. And you know what we find out? They’re not.”

Schlesinger says it’s very important during this time to not make that same mistake when it comes to your savings.

“That you don’t turn your nose up and say, ‘Well I could have had something higher and now I don’t have that. You don’t have to get the highest rate,” Schlesinger says. “The point is you want to have a rate that’s in excess of inflation so that your safe money can grow and grow in a way that is consistent with what your needs are going to be.”

A CD ladder is another way to take advantage of a rate cycle that we possibly won’t see again for a long time.

Bottom line

Savings yields at competitive online-only banks have decreased at some popular banks this year, but the decreases have been minimal. A bank lowering its APY by a few basis points isn’t generally a reason to switch banks. But it’s important to keep an eye on the yield to make sure you’re taking advantage of the most competitive rate.