Discover Bank has increased the interest rates for its online savings account and money market account. These increases caught our attention because they mean Discover Bank now pays more interest than most other banks today — as much as 1.1 percent annual percentage yield.
The increase also serves as a reminder of the importance of periodically surveying interest rates to see if it’s worthwhile to switch banks — especially now that the Federal Reserve System’s benchmark federal funds rate is on the rise.
“When the Fed increases the federal funds rate, the interest rates on savings accounts and CDs are likely to move higher as well. That means you stand to make more money on your savings.”
This cause and effect plays out gradually, though. So don’t expect to see a bunch of banks make steep increases in their interest rates overnight the next time the Fed raises its federal funds rate.
Still, the importance of periodically comparing rates stands. After all, compound interest is one of your greatest allies in building wealth.
Discover Bank raises APYs
Discover Bank is an online bank. It’s part of Discover Financial Services, the company that issues the Discover credit card, among other banking and payment products and services.
On June 9, Discover Bank increased the annual percentage yield, or APY, on its online savings account from to 1.01 percent to 1.1 percent, a spokesperson confirmed to Money Talks News.
As we explain in “Money Lingo You Need to Know for Financial Survival,” APY is the yearly amount you earn on savings, including compounded interest. You should compare APYs when shopping for savings accounts, among other financial products.
Other perks of Discover Bank’s online savings account include a no-minimum-required opening deposit and no monthly maintenance fees. Check out the website for more details or to open an account.
Also on June 9, Discover Bank increased the APY for its money market account. It’s now 0.95 percent for balances of less than $100,000 and 1.01 percent for balances of $100,000 or more.
The minimum opening deposit is $2,500, and there’s a $10 fee per statement cycle if your average daily balance is less than $2,500. If your savings is large enough for that not to be an issue, the perks of the money market account include no ATM fees at some 60,000 ATMs nationwide. Check out the website for more details or to open an account.
In May, Discover Bank also increased the APY for some of its CDs. Their APYs also depend on the CD term you choose, so visit the website to view all the CD options.
Switching to an online bank
It’s no coincidence that looking for an online bank is tip No. 1 in “11 Ways to Find a Bank With More Bang for Your Buck” and tip No. 2 in “14 Ways to Avoid Paying Irritating Bank Fees.” As the latter story explains:
“… because online banks have lower overhead, they can afford to charge you less.”
I moved my household’s savings account from a brick-and-mortar bank to an online-only bank last year and would recommend it. We easily get what little customer support we need by phone, our savings earn a relatively high yield, and we’ve yet to be charged a single fee.
If you’re considering switching banks, check out our step-by-step guide — “5 Simple Steps to Painlessly Switch Banks.”
What’s your experience with online banks? Let us know below or on our Facebook page.