How Half of Americans Are Missing Out on Billions in Investments, According to Graham Stephan

Are we all banking wrong?

Key points

  • The largest banks (by market share) have some of the lowest savings account interest rates, meaning millions of people are missing out on potentially billions in earnings.
  • Although the percentages seem small, they can add up, especially when you have a larger amount of savings.
  • Online banks tend to have the highest rates, though some brick-and-mortar institutions also have competitive rates.

Money is a very touchy topic. We all want to think we’re doing what’s best for our finances — and few of us want to hear that we’re doing something wrong. But, according to personal finance guru Graham Stephan, millions of us are doing something very wrong indeed. Something that could collectively be costing us billions.

What huge mistake is so universal? As it turns out, around half of us are actually keeping our money in the wrong banks. And we’re losing out big time.

Big banks = low interest rates

The five highest-yielding banks paid out a reported 2.14% in 2022.

Unfortunately, these aren’t the same banks that make up the top five when it comes to market share. And those banks have an average savings account interest rate well below that 2.14% mark.

  1. JP Morgan Chase: The largest bank in the U.S. by market share, Chase has terrible rates. Its typical account offers just 0.1% interest, and even its higher-tier account caps out at 0.2%.
  2. Bank of America: Second on the list, BoA offers the same sad 0.1% rate for its base savings accounts. If you have more assets and a great relationship, you can get up to 0.4% — which is still pretty sad.
  3. Wells Fargo: No. 3 has slightly better rates — with lots of emphasis on “slightly.” The standard rate for a Wells Fargo savings account is just 0.15%, though it can go as high as 0.25% if you deposit at least $1 million.
  4. Citibank: So, No. 4 is our exception that proves the rule. Citi has a nice big 3.85% APY on its savings accounts, putting everyone else on this list to shame. Shame!
  5. U.S. Bank: Another major bank with a major interest rate problem, U.S. Bank’s basic savings account rate is just 0.1%. With an elite account (and at least $500,000 in savings), you can boost that up to a measly 0.75%.

As you can see, with the exception of Citibank, the top five are likely in the bottom five (or four) if you go by interest rates, with some of them paying out less than a tenth of what the high-yield banks pay out.

Little percentages add up to big earnings

When you’re comparing interest rates, it can be easy to get misled by the tiny little percentages you’re looking at. I mean, is 2% really so much better than 1%? It’s a single percentage point!

Yes. It really does make a difference. And that difference gets bigger the more money you have saved up. Here are some numbers to consider:

Savings Account Balance APY 1-Year Return
$1,000 0.1% $1
$1,000 1% $10
$1,000 2% $20
$5,000 0.1% $5
$5,000 1% $50
$5,000 2%

$10,000 0.1% $10
$10,000 1% $100
$10,000 2% $200
$25,000 0.1% $25
$25,000 1% $250
$25,000 2% $500

Source: Author’s calculations

Alright, so you’re definitely not going to retire on the interest you earn with your savings account. (That’s why most experts tell you not to keep the bulk of your savings in a regular bank account; they suggest you invest it instead.)

But — it’s basically free money! If you’re going to plop your emergency fund in a savings account, shouldn’t you want that money to be in the best possible account for it to grow?

Yes. The answer is yes.

So, what’s the solution? Change banks!

Online banks often have the highest rates

As a general rule, brick-and-mortar banks — those with physical bank branches — pay out the lowest interest rates (excepting Citibank — we see you!). But if you’re willing to go with an online bank (banks without physical branches that do everything online instead), you can typically get a much better rate.

The reasons are varied, but often come down to overhead and market share. For one thing, online banks aren’t spending money staffing and maintaining all those branches. This cuts down the overhead significantly, allowing them to offer better rates.

And then there’s market share. The five biggest banks — or, arguably, any bank in the top 10 — already have tons of customers. This means they have tons of deposits. So, anything they want to do, they likely already have the necessary capital on hand to do it.

Smaller online banks, well, don’t. That’s a big incentive for them to try and lure in new customers (and, thus, new deposits) by offering higher interest rates than their competition.

Switch banks to make bank

In summary, if you’re keeping your money at a big national bank, chances are good you’re missing out on lots of potential interest. This could mean hundreds of dollars a year that you’re not earning on your savings. (Multiply that by the millions of people missing out and you get that “billions” number Stephan used.)

The best way to combat low interest rates is to switch to a bank with better rates. Online banks tend to have some of the best rates. Plus, many banks offer sweet new account bonuses that make the switch even more lucrative.

Keep in mind, you don’t need to switch over every single account. If you like your checking account, leave it alone. If you’re happy with your retirement account, don’t mess with it. But if you’re earning a sad little 0.1% on your savings account — consider moving it to a new bank that values your savings as much as you do.

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