High Yield Saving Account and CD Rates Compared Globally

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In America we can get Annual Percentage Yields (APY) or savings rates between 0.01% and 1% for money kept in high yield on-line saving accounts. This range is quite pathetic but when compared to the volatility of returns from stock markets over the last few years some would take the guaranteed low return. However, having lived overseas and still having some cash there, I can assure you that here in America we are getting some of the lowest APYs. For example in Australia you can earn an average of 3% to 4% in online savings accounts that operate in exactly the same fashion as the ones here! To illustrate the global interest rate differentials I have complied a list of high interest account savings and CD (Certificate of Deposit or Term/Fixed Deposit) rates from around the world in the table below. See this article for the best Online Saving Accounts (US residents only)

Country

Average Savings Rates
(Non-checking accounts)

Average CD Rates
(1yr Fixed  or Term Deposit)

Australia

3.5%

4.0%

Canada

1.5%

2%

Germany

1.25%

3%

France

2%

3%

India (1 year Fixed Deposits)

7%

8.25%

Italy

2.3%

3.75%

United Kingdom

1.25%

3.75%

USA

0.25%

0.75%

 

I think the table above clearly demonstrates the substantial saving account interest rate differential across the various countries, with the US and Canada trailing the pack. The rate differential across the various countries is essentially a reflection of the differing central bank/treasury prime interest rates and prevailing inflation levels in these countries. It is this savings interest rate differential (in addition to low cost online banking model) that allows many banks, especially the global ones, to afford to pay savings interest rates well above the US treasury (risk free) rates and still make a decent profit. Put very simply, if a bank can get money in the US, invest it at 6% overseas and pay 3.5% to depositors here it still nets itself a 2.5% risk free return. When we are dealing with billions of dollars, a 2.5% return means a lot of money. That is why so many banks are rushing to provide online savings accounts and why you see so many new offerings every other day.

Can I open an online foreign savings account to get higher rates? Unfortunately most American residents cannot take advantage of these foreign bank accounts because they require proof of local residence to open account (if I am wrong on this let me know). There are indirect ways to benefit from high overseas interest rates (e.g. foreign bonds) but these are then different asset classes and you lose some of benefits and easy access direct online savings accounts offer.

Also the tax implications, exchange rate differentials and administrative hassles make having a foreign savings account too much of a hassle and generally not worth it for sums less than $50,000. Still I hope this post sheds some light on how these online banks operate and why they can offer such high rates relative to standard checking accounts. Click here for the best Online Saving Accounts (US residents only)

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[…] HSBC and ING should still be market leaders in the online savings account space thanks to their global reach and […]

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