The best savings rates are still online, but they’re far less attractive than they used to be because of the coronavirus pandemic.
Since the COVID-19 outbreak began in March, the average yield on online savings accounts plunged by the largest and steepest amount since 2010, according to DepositAccounts.com.
The yield dropped from 1.711% in March to 1.043% in July, according to the company’s index that averages the yield of 10 mature online savings accounts from well-established online banks.
The average is significantly lower than just a year ago, when the yield was at 2.192% in July 2019.
The drop reflects the drastic steps the Federal Reserve took to help the economy weather the pandemic and ensuing state shutdowns, including cutting its key benchmark rate that savings rates follow to zero.
“Online banks tend to be a little more responsive to the market and the economy,” Ken Tumin, founder and editor of DepositAccounts.com told Yahoo Money. “Their rates tend to mirror how the rates change and tend to be based on more on how the economy is moving.”
How do online yields compare with big banks?
Even though their yields are down, online savings accounts still offer the most favorable rates compared with the big banks.
Traditional brick-and-mortar banks have a long history of offering little interest on customer accounts, and that’s partly because banks have more overhead from their retail locations and employees.
Online banks, on the other hand, don’t pay for physical locations or expensive customer-facing equipment. They also have fewer employees. Free from the expenses of brick-and-mortar banks, online banks pass the savings to the customer.
The overall average interest rate for savings accounts is under 0.19% now, Tumin shared, or about a fifth of what online banks offer.
When it comes down to where to put your money, Tumin said it “always makes sense to go with a place to get better yields or as high of yields as you can.”