11 Sure Signs You Aren't Earning Enough Interest on Your Savings

If your savings account isn't earning competitive interest, you're losing money. With inflation and fluctuating interest rates, parking your funds in a low-yield savings account is about as helpful as a coffee tin bank in the garage — with none of the retro charms.

Many Americans fear they won't have enough for retirement, yet overlook how they're being short-changed now with stingy savings APYs. Earning more interest on savings is a crucial step toward long-term financial security and retirement readiness, which means making every cent work harder for you.

According to the FDIC, the national average savings account interest rate is currently 0.41%. However, some financial institutions like Varo offer APYs as high as 5%, enough to make a major dent in your savings efforts.

But any increase above what you're currently getting could be a win. Nilay Gandhi, a senior wealth advisor at Vanguard, notes that even a 1% to 1.5% increase in APY can make a significant difference. If your bank isn't offering a competitive rate, it could be time to move your money.

If your savings interest rate is lower than the inflation rate, your money loses purchasing power.

Inflation directly impacts savings rates, and when the Federal Reserve raises interest rates, savings accounts tend to offer better yields. But when inflation exceeds your savings interest, you're effectively losing money. High-yield savings accounts can help mitigate some of this loss.

If you're paying fees to maintain your savings, any interest earnings could be wiped out. According to figures by LendingTree, Americans pay a staggering $107 per month in bank fees, including maintenance charges, ATM fees, and withdrawal penalties. That's $1,284 a year, or $6,420 over five years.

Yikes!

Many institutions, however, do offer completely fee-free savings accounts. SoFi, for example, provides zero-fee savings and checking accounts with no minimum balance requirements and a current welcome bonus of up to $300.

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A savings account's annual percentage yield (APY) is variable, meaning it fluctuates over time based on economic conditions.

If your account's rate hasn't budged (meaningfully) in years, it likely isn't keeping pace with competitors. Banks are not required to adjust your APY automatically, and if your rate has been stagnant, it could be time to change things up.

Not all banks offer high-yield savings accounts or certificates of deposit (CDs). If your financial institution doesn't provide these options, shop around for one that does.

Banks that offer high interest-bearing products are often closed to all but the wealthiest accountholders. Many traditional banks require minimum balances of $50,000, $100,000, or even more.

Here is where online-only institutions often have an edge. These banks commonly offer APYs far superior to traditional brick-and-mortar rates and for within-reach savings balances.

The FDIC insures deposits up to $250,000 per account holder per bank. However, if you have more than that within one institution, your excess funds may not be protected.

Some fintech firms partner with online banks for expanded FDIC coverage by spreading deposits across multiple partner banks, increasing insured amounts up to $5 million.

A good savings account should provide direct access to your money without excessive withdrawal restrictions. Some banks require in-person visits or charge excessive withdrawal fees.

Look for banks that offer fee-free ATM access, mobile banking options, and flexible withdrawals.

Conversely, if your savings account allows you to withdraw money too quickly, you may be tempted to spend it.

If you regularly dip into your savings to cover monthly purchases, you may need to consider keeping an emergency fund in a high-yield savings account at a different bank than your checking account or locked into a CD.

The added steps needed to unlock funds will help minimize impulsive withdrawals.

If you don't have enough savings to cover a sudden expense, like a car repair or medical bill, it could be your savings rate, and your savings APY aren't working hard enough.

Growing up, most of us heard about the three-month cushion rule, but now experts recommend setting aside six to 12 months of expenses in an emergency fund.

For example, if your monthly expenses are $3,500, you should aim to have at least $21,000 in savings.

If your income barely covers your expenses and you aren't building a nest egg, you're vulnerable to financial instability. Not being able to contribute (adequately) to savings can lead to increased reliance on credit cards, high-interest loans, or retirement withdrawals, creating a cycle of debt.

If financial stress is robbing you of sleep, it's a strong sign that your savings aren't where they should be. Addressing issues such as a lack of emergency funds, stagnant growth rates, or mounting debt can provide greater peace of mind.

If your savings aren't earning enough interest, it may be time to find a higher-yield option. 

From inflation eroding your spending power to pesky bank fees, small changes in where you keep your money can make a significant difference. Making your savings work harder for you is an often overlooked path to building wealth.