Jan 10, 2023

Question of the Day: Which banks have higher interest rates on savings accounts, online banks or traditional banks with physical locations?

As banking continues to transform, which type of bank is winning the race for the highest savings rate?


Answer: Online banks 


  • How much MORE would you earn in a year if you had $1,000 saved at an online bank compared to a “bricks and mortar” bank?
  • Despite offering much higher interest rates, online banks only have about 8% of bank deposits. Why do you think they don't get more deposits?
  • Would you ever bank with an online bank? Why or why not?

Click here for the ready-to-go slides for this Question of the Day that you can use in your classroom.


Behind the numbers (Investopedia): 

"Better Rates, Lower Fees
The lack of significant infrastructure and overhead costs allow direct banks to pay higher interest rates or annual percentage yields (APYs) on savings. The most generous of them offer as much as 1% to 2% more than you'll earn on accounts at a traditional bank—a gap that can really add up with a high balance. While some direct banks with especially generous APYs offer only savings accounts, most of them offer other options including high-yield savings accounts, certificates of deposit (CDs), and no-penalty CDs for early withdrawal.

You're less likely to be dinged with a wide range of fees at a direct bank including those associated with keeping an account open with a low balance, making direct deposits, or paying by check or debit card. Accounts at direct banks are more likely to carry no minimum balance or service fees."



Let your students practice using online banking features with the NPGF Activity - INTERACTIVE: Online Bank Simulator


Here's a popular NGPF activity where students research the various types of savings accounts - Compare: Types of Savings Accounts


About the Author

Mason Butts

After graduating from UCLA with a Master's in Education, Mason spent 5 years as a science educator in a South Los Angeles public high school. He is committed to supporting the holistic growth of all students and empowering them to live a life of relational, academic, and financial success. Now settled in the Bay Area, Mason enjoys facilitating professional developments and partnering with educators as they prepare students for a bright financial future. When Mason is not building curriculum or planning a training, he can be found cycling, trying new foods, and exploring the outdoors.

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