Savings Accounts and Emergency Funds

Greetings my upwardly mobile friends,

I subscribe to the common sense idea that it’s smart to have cash available in a savings account in the event of an emergency like: 1) an unforeseen medical expense; 2) spontaneous unemployment; or 3) a catastrophe at home. As, investments are not always liquid and may be subject to economic downturns, they cannot be viewed as a totally reliable way to maintain an emergency fund. I’ve been researching the various savings account options for storing my emergency fund as I’ve been disappointed with the bank I was using.

With the current low interest rate environment, an emergency fund is unlikely to grow just sitting in a bank account. As I write this, interest rates are so low, that the average bank offers much less than 1% APY on a savings account. In other words, if you throw your emergency fund into a savings account at your nearest bank, the odds are that you will be getting less than a 1% return….. If you keep an emergency fund, that money gets crushed over time by inflation.

Case closed, right? Post over? Of course not! This would be a shitty blog if all I did was whine about interest rates.

I put in some time to shop for a savings account at a new bank and found that things have been changing for the better in the world of savings account interest rates. In fact, I was stunned to learn I was leaving substantial money on the table by not having shopped sooner. It turns out that, depending on the size of your emergency fund, you could be losing out on hundreds of dollars of free money annually.

I switched savings accounts and I now find myself receiving more interest per month from my new bank than I received over the last several years combined from my old bank. The result is literally hundreds of dollars more per year are deposited into my emergency fund. Better yet, it’s money I receive without doing any work.

There are a handful of reputable banks offering much better interest than the national average. These are the banks that I found that are offering savings account interest rates greater than 1.3% (e.g., many multiples more than the average bank).

BankProductInterest (APY)
Marcus by Goldman SachsHigh Yield Online Savings Account1.40%
CIT BankPremier High Yield Savings Account1.55%
Synchrony BankHigh Yield Savings 1.45%
Barclays BankOnline Savings Account1.30%

Despite the number of banks offering ten to twenty five times as much interest on savings accounts, most people apparently choose their bank primarily on branch location.
If you’re already being a responsible adult with an emergency fund, shouldn’t you choose a bank that pays you hundreds of dollars a year in interest? I chose the option that pays me for being responsible and doing what I was already doing. I choose the option with free money.

*If I missed another great rate from another bank, please let me know in the comments!