America’s Best Rates – Online Banks Winning The Bank Rates War

Written by Richard Barrington

Financial Expert

Edited by Kristin Marino

Managing Editor

The world of bank deposit rates has been quiet in recent years, with rates low and barely changing. Suddenly, that seems to have changed.

According to the America’s Best Rates survey by MoneyRates, average savings account rates and money market rates rose for the second consecutive survey during the third quarter of 2017, and this time by an even wider margin than in the previous quarter. The real action is at the top of the charts, where a good old-fashioned rate war has broken out among several banks who are trying to outdo each other by offering customers higher interest rates.

Who is winning that rate war? The America’s Best Rates survey can show you which banks are coming out ahead, but the real potential win is for consumers. However, even as rates rise, some consumers will miss out if they remain stuck with the wrong bank.

Who’s winning the bank rates war?

The tables in the section that follow will show you which specific banks are winning the rate war based on the leading savings and money market rates in the latest America’s Best Rates survey. However, there are some broader trends that characterize who is winning or losing.

1. Online accounts are beating traditional accounts

Online accounts, with their cost advantages over traditional branch-based accounts, have long offered higher savings and money market rates, and the gap widened in the third quarter of 2017. While the average rates on traditional savings and money market accounts barely moved during the quarter, the average rates on each type of online account made more significant gains.

In fact, the vast majority of accounts that seem to be engaged in a race are online accounts. This makes sense – not only do these accounts enjoy a cost advantage over traditional accounts, but the ease of comparing rates online means consumers are more likely to take advantage of higher rates via online banking than by going from branch to branch.

The bottom line is that for every $1 the average traditional savings account pays in interest, the average online savings account pays $9.35. With money market accounts, the advantage for online customers is $5.42 for every $1. Online accounts are not just winning the rate war, they are dominating it.

2. Small banks are beating larger banks

Though not as dramatic as the difference between online and traditional accounts, small banks, in general, seem to be doing more for their deposit customers.

For every $1 in interest the average savings account pays at a large bank (those with $15 billion or more in deposits), the average savings account at a small bank (those with $5 billion or less) pays $1.62. Among money market accounts, the average account at a small bank pays $1.42 for every $1 earned at the average large bank.

3. Savings account rates are beating money market rates

The advantages for online accounts and small banks were greater for savings accounts than for money market accounts, and this is reflective of a trend that savings accounts generally enjoy a rate advantage over money market accounts. While the very top rates in each category are similar, on average, savings accounts pay $1.18 in interest for every $1 earned in a money market account.

Of course, the real win in these rate differentials and in rising deposit rates in general is for consumers. Unfortunately, while some consumers benefit, others are being left behind because the gap between the top and the bottom banks in the survey is widening.

The scale of this gap is pretty staggering when you think of it in dollar terms. During the third quarter, a customer with the top-paying savings account would have earned $129.57 for every $1 earned in one of the lowest-paying accounts. Clearly, there is a huge price to be paid for sticking with an under-performing bank.

Unfortunately, not all banks are participating in this rate war. For one thing, it is almost entirely an online phenomenon – nine out of the top 10 above are online accounts. Another thing is many institutions are stubbornly refusing to budge on bank rates. While several banks now offer savings account rates in excess of 1.00 percent, an even greater number still pay rates of just 0.01 percent.

As with savings accounts, not all money market accounts are participating in the rate war. Eight of the top 10 money market rates are offered by online accounts. Overall, there are still more accounts offering just 0.01 percent interest than there are accounts offering 1.00 percent or more.

The nice thing about the rate war among banks is that consumers get to choose a side. Just be advised that with many of the lowest-paying accounts being offered by large, branch-based banks, those consumers who don’t bother to make an active choice will probably end up on the losing side.