America’s Best Rates 2012 Q4 – Online Banks Press Their Advantage

Written by Richard Barrington

Financial Expert

Edited by Kristin Marino

Managing Editor

For the banking world, it may be the man-bites-dog story of the year: Some banks are starting to raise the rates they offer depositors.

What makes that so exceptional? Ever since the start of the Great Recession, each year has seen bank customers earn a little less on their deposits. There was little difference throughout 2012 — on average, deposit rates continued to fall. But in the third and fourth quarters of the year, a particular category of banks bucked the trend by actually raising their rates.

Mimicking the third-quarter survey results, online banks increased their average savings and money market rates in the fourth quarter as average rates at traditional banks fell or stayed flat. This heightened the already significant advantage that online banks have enjoyed over traditional banks in recent surveys.

Revealing differences

MoneyRates’s America’s Best Rates survey looks each quarter at savings and money market accounts, and sorts them into categories of online and traditional banks, as well as into groups of large, medium, and small banks. Overall, the results showed little improvement in average deposit rates in the fourth quarter.

The average savings account rates fell yet again during the last months of 2012, dropping slightly to 0.17 percent. In contrast, average money market rates rose just a little bit during the last quarter, to 0.22 percent.

While this means that customers may do better with a money market account than a savings account, the real difference maker — for both money market and savings accounts — was less the type of account and more the type of bank. Once again, the average savings account rate at online banks rose while the average savings account rate at traditional banks fell. It was a similar story for money market accounts from online banks, which saw average rates rise for a second consecutive quarter, while there was no change in the fourth quarter for the average rates at traditional banks.

Online banks already offered higher rates than traditional banks in previous quarters, but now the gap is growing. The divide between average online and average traditional rates is now approaching half a percentage point per year — a considerable advantage given the level of rates today.

In the fourth quarter of 2012, online savings accounts paid an average of 0.60 percent, compared to 0.11 percent at traditional banks. Online money market accounts paid an average of 0.65 percent, compared to an average of 0.17 percent at traditional banks.

In contrast, bank size made much less of a difference in the fourth quarter, as there was less than one-tenth of one percent variance in average rates for the small, medium, and large bank categories.

America’s Best Rates: Savings account rates

With savings account rates down to just 0.17 percent on average, there is more incentive than ever for customers to insist on one of the top rates, which have been rising lately and now approach 1 percent. Here are the top 10 savings account rates from the fourth-quarter America’s Best Rates survey:

All of the banks in the top 10 the previous quarter remained in the top 10 in the fourth quarter, though the order was shuffled a bit. Ally Bank and American Express National Bank held onto the top two spots by raising their rates during the quarter.

America’s Best Rates: Money market rates

Of special note in the money market category, Sallie Mae Bank broke the 1 percent barrier — a rare sight for depositors lately. Twelve banks appear below rather than just 10 because there was a four-way tie for ninth place.

The America’s Best Rates survey is based on the MoneyRates Index, a sampling of banks that includes the 50 largest U.S. banks and 50 smaller banks. This survey does not include “teaser” rates, which are rates that apply for a limited time period. The above figures are based on average rates throughout the calendar quarter, so a bank has to offer high rates consistently to be among the leaders.

Notably, the top four spots on the money market list and the top seven spots on the savings account list are held by online banks. The incentive for consumers to try online banks seems to be getting stronger with each survey, but only time will tell whether the difference will lure more customers from brick-and-mortar institutions in 2013.