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Discover Bank once again has increased the interest rate for its online savings account. This increase caught our attention because it means Discover Bank now pays more interest than most other banks today — as much as a 1.5 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.
As the federal funds rate has been rising, some banks have started increasing the interest rates they offer on savings accounts, money market accounts and certificates of deposit (CDs).
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 APY
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.
Recently, Discover Bank increased the annual percentage yield, or APY, on its online savings account to 1.5 percent. 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.
Switching to an online bank
It’s no coincidence that looking for an online bank is among the “10 Tips for Finding a Bank With More Bang for Your Buck” and “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.
If you’re considering switching banks, check out our step-by-step guide — “5 Simple Steps to Painlessly Switch Banks.”
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