Why a Larger Bank May Not Be the Best Place for Your Savings

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KEY POINTS

  • People are commonly drawn to recognizable brands, and that extends to banking.
  • You may be better off steering clear of large banks when you open a savings account.
  • An online bank could be a great option for storing your cash.

A well-known name won't always translate into the best experience.

If you have money you're setting aside for emergencies or a nearer-term goal, like buying a car or a house, then the best place for that money is a savings account. Though savings accounts may not pay a ton of interest, the upside is that your deposits are protected with FDIC insurance (provided you aren't socking away more than $250,000 at a single institution).

When you're looking for a savings account, you may be inclined to open one at a well-known bank -- one whose name is easily recognizable, with branches all over the place. But while there are benefits to banking with a major institution, you may want to consider opening a savings account at a smaller bank.

Don't be lured by big banks

You might assume that a large bank is the best place for your money because those companies have lots of resources. That means they should be able to offer the best interest rates and service, right?

Well, not necessarily. While it's true that large banks do have a lot of resources, they also have a lot of overhead and expenses.

Think about the commercials popping up on your TV screen, or the ads you see when you browse the internet. Often, they're paid for by big banks hoping to drum up business. But marketing and advertising can cost a lot of money. And if big banks are spending resources on that, they may pass some of those costs on to customers in the form of higher fees and lower interest rates.

That's why you may want to put your savings into a smaller bank. You may be surprised to learn that some smaller banks offer comparable interest rates, if not better ones, than their larger counterparts.

Furthermore, because smaller banks don't have to spend the same advertising dollars as larger banks, they often rely on word-of-mouth marketing to grow their customer base. As a result, they may be very invested in providing outstanding service.

Consider banking online

A small bank could be a great option for housing your savings. But an even better option could be a small online bank.

Online banks don't have to bear the cost of maintaining physical branches, so they can pass those savings on to customers in the form of higher interest rates. And because there's no face-to-face interaction, online banks often employ knowledgeable customer service reps who do a great job engaging with customers over the phone.

You might assume that you'll get the best interest rate on your money and customer experience by opening an account at a big-name bank. But before you go that route, consider the upside of using a smaller bank. You may not get access to as much complimentary swag, but if you're willing to forgo the free pens and notepads, you might walk away with a world of other benefits.

These savings accounts are FDIC insured and could earn you 11x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts could earn you 11x the national average savings account rate. Click here to uncover the best-in-class accounts that landed a spot on our short list of the best savings accounts for 2024.

Two of our top online savings account picks:

Rates as of May 22, 2024 Ratings Methodology
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SoFi Checking and Savings Barclays Online Savings
Member FDIC. Member FDIC.
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4.00/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
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APY: up to 4.60%

APY: 4.35%

Min. to earn APY: $0

Min. to earn APY: $0

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