Ally just raised the interest rate on her savings account to 0.90%. Here’s how much it can boost your savings
Ally Bank has just raised the rate on its High Yield Savings Account from 0.75% to 0.90% APY.
This is the latest in a series of rate increases from Ally and other online banks following the Federal Reserve’s decision to raise federal interest rates in recent months. Over the past month, Ally has increased its savings APY from 0.50% to 0.60%, then to 0.75%, before this week’s jump to 0.90%.
Experts predict that interest rates will only continue to rise for the rest of 2022.
Ally is already one of our picks for the best high-yield savings accounts and ranks among the best savings account rates today. Here’s why and what the new rate means for your savings:
How much can you earn with Ally’s 0.90% APY?
Let’s say you have $10,000 set aside as an emergency fund in an account with Ally.
At the previous 0.75%, you would earn about $75 in interest in a single year. Now, with an APY of 0.90%, you will earn around $90 over the same 12 month period.
That may not seem like a lot of money in the long run, especially given the large balance of $10,000. But compare that to the current national average savings interest rate of 0.07%, which is more in line with what you would find at a traditional national bank with physical branches. With the same $10,000 in a traditional savings account earning this average, you would only increase your income by $7 over the course of a year.
Now consider that you have $10,000 in your account today and can contribute an additional $100 per month over the next year. Here’s how much you could earn by the end of the year by earning 0.90% APY, versus no additional contribution, and contributing the same amount with the national average of 0.07% APY.
|Ally Bank 0.90% APY||Ally Bank 0.90% APY plus contributions||National average 0.07% APY||National average 0.07% APY plus contributions|
|Starting savings balance||$10,000||$10,000||$10,000||$10,000|
|Total savings balance after one year||$10,090||$11,296||$10,007||$11,207|
For more comparison, here’s a look at the current yields offered by other banks on our list of best savings account rates:
Best Savings Account Rates
|Savings on bread||1.15%|
|Prime Alliance Bank||1.11%|
|Lending club bank||1.05%|
|Living Oak Bank||1.05%|
|Salem Five Live||1.01%|
|Goldman Sachs Bank USA||0.85%|
|Discover the Bank||0.80%|
|American Express National Bank||0.75%|
Why we love Ally Bank
Ally Bank is one of our favorite banks for high yield savings thanks to its excellent customer service and because it consistently offers one of the best APYs around. There are no monthly maintenance fees or minimum balance requirements to open or manage your account. Ally also offers a grouping feature that allows you to dedicate different amounts from your online savings account to different purposes, such as an upcoming vacation, a down payment on a house, or an emergency fund.
In addition to its high-yield savings account, Ally offers CDs, interest-bearing checking accounts, investment and retirement funds, and even loans.
However, we also think that all of the banks in the table above and our list of the best high-yield savings accounts are great places to store your money. Each of these banks offers low or no minimum deposit requirements, no monthly fees, and some of the highest APYs available today.
The most important thing is to find a bank with the features that best suit your needs (mobile app access, unlimited withdrawals, savings tools, etc.) and start saving. You can set up automatic transfers to your savings each time you get paid to make the process even easier. Then you can focus on other financial goals like paying off debt or buying a house.
Why are interest rates rising?
Since the start of the pandemic in the spring of 2020, the Federal Reserve has kept rates close to zero. But in response to inflation and other economic factors, the Fed began raising interest rates earlier this year.
Online and traditional banks generally base their interest rates on the federal funds rate set by the Fed. This is true for the APRs they charge borrowers (credit card interest, mortgage rates, etc.) and the APYs they pay customers on their deposits in savings accounts or CDs.
As the Fed continues to raise the federal funds rate, you can expect APYs on savings accounts, as well as money market accounts and CDs to rise as well.
Keep in mind that these rates are still marginal, and even the best high-yield savings accounts only earn around 1% of your balance. It’s a safe and reliable way to store short-term or emergency savings, but it’s not a good vehicle if you’re looking to build wealth. For longer-term investments and retirement savings, it’s a good idea to diversify your portfolio with investment accounts like index funds and mutual funds, and retirement accounts like a 401(k) or a Roth IRA.