For more than a year, banks have been increasing their savings rates. The average interest rate in a savings account is 0.43% APY, but many institutions are paying significantly higher rates - and two are even paying over 7% interest.
How do 7% interest rate savings accounts work, and whether it's worth it to open an account with such a high interest rate?
Which bank gives 7% interest on savings account?
Three financial institutions are paying at least 7% APY, including Landmark Credit Union, Alpena Alcona Credit Union, and OnPath Federal Credit Union. They are offering these APYs on checking accounts.
On its OnPath Rewards High-Yield Checking account, OnPath Credit Union is offering 7% APY. On balances up to $10,000, you will earn 7% APY.
To be eligible, you'll need to meet a few qualifications. You must log in your OnPath account once or more times per statement cycle, which is typically one or more times per statement cycle. To receive e-statements, you must also register for e-statements and receive them for the eligible statement cycles. You must then make 15 or more debit card purchases that post and settle during the statement cycle.
To open a checking account, you need to deposit a minimum of $25.
If you want to join OnPath Credit Union, you must live, work, pray, volunteer, or go to school in an eligible community of membership community in Louisiana; be an immediate relative of someone who is eligible to become a rememberer; work for or have retired from a company that partners with OnPath; or donate $5 to the OnPath Foundation.
Alpena Alcona Area Credit Union pays 7.19% APY on its 7-month CD special. But as with Landmark, there are some things to know before applying for the account.
First, know that this is a CD, not a savings account. The good news is that CDs lock your rate for the entire term, so you don't risk your rate decreasing for those seven months. If you need to withdraw money before the term is over, you'll be liable for a penalty.
Second, you have to qualify for membership in Alpena Alcona Area CU before opening a CD. To join, you must live in Michigan, work, own property, go to school, or worship in any county in Michigan; work at the credit union; or have an immediate family member who is an existing member.
The credit union also allows you to deposit up to $7,000 into the 7-month CD, which limits how much interest you can earn.
If you plan on depositing $7,000 or less, this CD may be worth it. However, you can still find some of the best CD rates in other institutions.
However, Landmark's premium checking account pays 7.50%, but there are some significant caveats to consider.
First, keep in mind that this is a checking account, not a savings account. To qualify for interest rates of 7.50%, you must sign up for e-statements and receive $250 per month in direct deposits.
You can earn 7.50% on balances up to $500. Landmark compound interest monthly, meaning you'll only earn a little under $40 on $500 in an entire year. Over $500 balances earn 0.11% APY, well below the national average.
Landmark Credit Union's 7.50% APY account with APY may not be worth opening, he said. You'll earn more with an account that pays a slightly lower rate, but at higher balances - maybe on all accounts, including your entire account balance.
What is the meaning of a 7% interest rate in a savings account?
With an account paying 7% APY, you'll earn 7% on your balance over a year. Banks usually compound interest, meaning they pay interest on the amount deposited and the interest earned on top of it.
Banks can compound interest daily, monthly, quarterly, or annually, and the more often it compounds interest, the more you'll earn in the long run. Banks frequently compound interest daily and pay it into your account monthly.
With a 7% APY savings account, you can pay interest on all of the money in your account. Or you may earn 7% on only a portion of your balance or earn interest only if you meet certain requirements. Have knowledge of the bank's policies before opening a savings account with a high interest rate.
While no savings accounts pay 7% right now, there are numerous accounts that pay a significant amount of fees on your entire balance. The following accounts are among the best alternatives to Landmark's checking account, and they don't necessitate you to meet requirements every month to earn their unrestricted rates.
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Certain banks don't require any money to open a savings account, while others require thousands. Make sure you can afford the opening deposit, irrespective of the amount.