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Understanding Savings Rates

Apr 2022 | Financial Education, Savings

There are lots of different types of savings accounts that offer different dividend structures. But are you getting the best bang for your buck? Keep reading to find out!

Flat Rates –

This is the type of rate offered through Alaska Air Group Credit Union Savings Accounts*. This means that the rate does not change regardless of dollar amount or time. At AAGCU, our sub-savings have the same dividend payout as our regular savings so you can add as many savings accounts as you would like and achieve your savings goals!

Variable Rates –

A popular type of savings account has a high savings rate on a set amount (typically around $500), then the rate drops on any amount above that. Though the high dividend rate might look appealing at first glance, is it really a better deal?

The following chart depicts the difference between a savings account that offers a flat rate of .15% APY on the total balance, versus a savings account that offers a variable rate of 0.5% APY on the first $500 and .02% on any balance above $500.01.

Notice that below $2,000 in the account, the variable savings account offers a better dividend option. However, on anything above $2,000, the flat rate savings account offers a much better dividend payout. For most individuals, the savings account offering the .15% APY is the better savings account.

Tiered Rates –

Many financial institutions will also offer a high yield savings account or a money market account that offers tiered rates for higher dollar amounts. For example, it may look something like this:

$1 – 9,999.99 has an APY of .10%

$10,000 – 49,999.99 has an APY of .20%

$50,000 – 249,999.99 has an APY of .35%

$250,000+ has APY of .40%

This type of account can be helpful for people who want to earn dividends on large sums of money, but still want flexibility to access it. However, be mindful that many times the lowest tier in these accounts has a lower rate than a traditional savings. It would be worth it to do the math to ensure you are getting the most dividends.

The graph below depicts a tiered savings account using the tiers expressed above compared to a regular savings with a rate of .15% APY. Notice how until $20,000, the regular savings account offers higher dividends. However, instead of opting for a high yield savings or money market at this high dollar amount, you may want to look into certificates which typically offer higher dividends, though they do not offer as much flexibility as a savings account.

* Regular Savings, Sub-Savings Accounts, Youth Savings, and Christmas Club Savings. Your savings are federally Insured by NCUA.

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