Online Savings Account Rates Hit 1.50 Percent

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Online savings account rates increased again this month and have hit a milestone. The best online savings rates hit 1.49 percent with an APY of 1.50 percent, a new high for 2017. Savings rates moved higher in December because the Federal Reserve increased the fed funds rate.

The fed funds rate was increased by 25 basis points during the Fed's December meeting. The new targeted range for the fed funds rate is 1.25 percent to 1.50 percent. You can see a history of fed funds rate increases and decreases since 2003 at Fed Funds Rate History.

The online savings account rates listed below are higher than traditional brick and mortar bank savings rates. In fact, the difference between online rates and brick and mortar banks is dramatic. For example, Third Federal Savings and Loan is currently offering savings rates at 0.15 percent, one tenth of the 1.50 percent rate.

The largest banks are offering savings rates even less than 0.15 percent. Chase Bank's Chase Savings rate is at a paltry 0.01 percent. They clearly have no interest in attracting deposits by offering a rate of 0.01 percent.

There are currently three online banks in the rate database offering a savings rate of 1.50 percent. Live Oak Bank, DollarSavingsDirect, and Salem Five Direct are all offering online savings rates at 1.50 percent. The minimum deposit varies for all three banks but are not large sums.

Online Savings Account RatesOnline Savings Account Rates Moving Higher in 2018

Online savings rates started 2017 lower than the current level. Back in January the top rate was at 1.05 percent. Rates moved higher as the Fed increased the fed funds rate. The Fed increased the rate 25 basis points in March and by April the top savings rate was at 1.15 percent.

In April, we published an article predicting online savings rates would move up to 1.50 percent by the end of 2017. In that same article we predicted 1 year CD rates would move to 1.75 percent.

The top 1 year rate is even higher, currently at 2.00 percent. You can read the April 2017 post at Savings Rates Continue to Increase, Courtesy of the FOMC.

Where deposit rates head in 2018 will be dependent on inflation and what the Fed does. The Fed released their own projection materials after their December meeting showing the fed funds rate increasing. The Fed projected the rate to hit 2.10 percent by the end of 2018.

A fed funds rate at 2.10 percent would put the top online savings rates around 2.25 percent. The top 1 year CD rates would move towards 2.75 percent and possibly hit 3.00 percent.

Most noteworthy rates could move even higher if inflation picks up steam. This is very possible because of the tax cut just passed.
Author: Brian McKay
January 2nd, 2018