Why You Should Close Your Savings Account

Alamy Checking is the new savings, according to a WalletHub report last month, which found interest-bearing checking accounts pay as much as five times more interest on balances up to $50,000 than savings and money market accounts. But that only scratches the surface of the changes undergone by the banking industry in recent years, according to the report's findings. While certificates of deposit are still best for long-term saving, their interest advantage over online checking accounts isn't as substantial as you might think. For example, locking away $10,000 in a five-year CD will only get you 0.98 percent, on average, compared to 0.53 percent from the average online checking account. A hierarchy has emerged for checking accounts. The average online checking account charges less per month than the average full-service checking account ($4.34 vs. $5.07) and offers 119 percent more interest (0.54 percent average percentage yield vs. 0.25 percent APY). What's more, 39 percent of online checking accounts are interest-bearing, compared to just 11 percent of traditional checking accounts. What we have, as a result, is a new age of banking where online checking accounts are at the top of the food chain. Consumers unhappy with their cash-based interest earnings should therefore consider moving their reserves into a new online checking account, especially if they are reticent to invest in the stock market. We all need to make our money work for us, after all, and traditional long-term savings vehicles aren't cutting it in the current environment. But what caused this shift in banking dynamics, and is this the new normal or just a temporary trend? There are a number of likely contributing factors: Low Fed rates. You can't expect much from long-term savings products when the Federal Reserve is keeping rates near zero to promote borrowing and stimulate the economy through increased spending. Money crunch. People simply might not have enough money to be saving in any substantial fashion. The average household has $6,700 in credit card debt; 30 percent of Americans say they don't pay their bills on time; and insufficient savings tops the average person's list of financial concerns, according to studies from CardHub and the National Foundation for Credit Counseling. So it might just be that people simply have more demand for everyday banking tools like checking accounts than they do for savings-related products at this point in time.