With the Federal Reserve Board hiking interest rates significantly over the course of the last year, it would be expected that interest rates on savings and money market accounts would have followed suit.  Not so fast!

After a quick check with the major banks, we were shocked to discover that even with the Federal Funds rate hovering in the 4%+ range, many banks have yet to adjust the interest rates they pay to customers on deposit accounts like savings and money market. 

In fact, here are current money market interest rates of several of the major banks:

• Wells Fargo:  0.25%

• Bank of America:  0.01%

• Truist:  0.01%

• PNC:  0.04%

• SECU:  0.70%

Those who maintain significant money market balances are most likely missing out on much higher money market rates.

We would suggest taking a look at Bankrate.com to search for an online bank where you are able to capitalize on higher interest rates.

We found many online banks have money market funds that have interest rates that exceed 3% and some approaching 4%!

For those who maintain sizable “emergency funds”  in money market accounts, a 3% “net” difference in interest earned can make a meaningful impact—especially when it is compounded over the course of multiple years.

Are online banks safe?

While online banks do not have a local, brick and mortar presence, they are just as safe as commercial banks and deposits are FDIC insured.

It is important to review the details when opening a new bank account.  Understand things like minimum balances, fees, maximum number of transactions each month and if the offered rate is a “teaser” and expires after a period of time.

We have found that online banks can be very convenient and an important component of a client’s cash management strategy.

What are the logistics when using an online only bank?

In most cases, establishing a relationship with an online bank is simple and very straight-forward. 

Normally, when opening an account with an online bank, a link is established between your current checking account and the online bank.  This link will allow you to electronically transfer funds back and forth between the banks as needed.

Of course it is important to periodically review your banking relationship as circumstances change.  Doing so ensures you are making the most of your “liquidity bucket” and your money is working for you!