Credit unions are well-known as the consumer's best friend — but when it comes to saving money, where are members really stashing their cash?
As fees rise at big financial institutions, fueling misgivings about traditional banks, consumers continue to turn to credit unions. According to the CUNA, 3.7 million people joined one of these not-for-profit institutions in 2015, making a record high of total members.
But while credit unions are famous for kids' savings accounts and teen financial literacy programs, savings-minded adults may be looking elsewhere – namely, online.
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As of April 2016, the national average interest rate for savings accounts was only 0.06% for all balances, according to the FDIC — the same as before the Fed's 2015 rate increase. The average national interest rate for money markets is only slightly higher — for deposits less than $100,000, 0.08%; for deposits of $100,000 and higher, 0.12%. These rates have also remained stagnant since before the Fed rate hike.
Taking advantage of the relatively low interest rates and consumers' desire to earn more on savings, the Big Bank of the 1%, Goldman Sachs, recently decided to allow the 99% to bank with them via a savings account.
According to an April 25 press release, Goldman Sachs Group Inc.'s new online venture, acquired from General Electric Co. in late April, caps a decade-long shift by the firm and Morgan Stanley to lean more on deposits for funding — efforts that will help them comply with a new rule unveiled April 26.
Goldman Sachs took over $16 billion of deposits from the online business it bought from GE Capital. Merging the platform with its GS Bank USA unit, it offers 1.05% interest on savings accounts opened online.
The real news for consumers is that Goldman Sachs is offering this typically top-tier rate even for accounts with low balances. According to Devan Goldstein, a banking expert at NerdWallet, the ability to open a savings account with the big bank could draw some interest from the masses.
"It's synonymous with the dream of wealth in America," he said.
Another popular online bank with a high-yield savings account is Ally Bank, with its Online Savings Account, boasting a daily compounded interest rate of 1%.
"I belong to a credit union, but I put my savings into Ally Bank," said Belinda Jaffe of Los Angeles. "One reason is that I like to keep my money separate, so I can't move it to my checking account easily. The other reason is I earn an actual percentage rate. Any little bit helps these days."
Online banks like Ally Bank can offer more competitive interest rates than traditional banks because they have lower overhead. But some credit unions have decided to offer higher interest rates to members with savings accounts, signaling awareness of their members' needs.
The $20.6 million AllyFed Credit Union promotes savings builder accounts in partnership with Delaware's First State Saves Initiative. The initiative is a division of America Saves, a campaign managed by the nonprofit Consumer Federation of America that seeks to "motivate, encourage, and support low- to moderate-income households to save money, reduce debt, and build wealth."
AllyFed's Share Builder Account helps members to grow their money with higher dividends, as well as tools that show members how to set financial goals, track spending, pay off debts and take control of their financial future. When a member makes regular deposits, they earn the credit union's regular share rate plus an extra 1%. Once the member has saved between $500 and $1,000, they can invest their savings in a share certificate and earn an additional 0.25% above the current rate.
Online bank Kasasa also offers free checking and savings accounts nationwide and Kasasa Saver through partnerships with dozens of credit unions and community banks. There's no monthly service fee or minimum balance, and rewards are deposited into a savings account, which pays a 1.01% annual yield; the rewards checking account yields 2.01%.
"I really need to save money, and I like the online banks because I feel that's the wave of the future," said Darla Bone of San Diego. "I don't need to talk to a person in regards to my savings account. I just put in the money and save. It's a no-brainer, with a higher interest rate."
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