Stashing Cash at Higher Rates

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Pursuing the Highest Return

One reason online banks can afford to offer rates that are six to seven times higher than those at typical brick-and-mortar banks is that online banks tend to have lower costs since they don't have to manage branches. Plus, online banks need to offer extra incentives to lure customers away from their traditional bank. "In the consumer world, you have to do something to make people aware of you. Part of it is having high rates," says Bruene.

He estimates that seven to eight million U.S. households, or roughly 6% to 7% of the country, maintain an account at an online-only bank. Consumers who have high-yielding accounts are more likely to pursue the highest return and move their money elsewhere. Since deposits of $100,000 and less at all consumer banks are equally protected by FDIC insurance, there's no additional risk in moving your money to a bank offering the highest return, says McBride.

Source: Bankrate.com. Rates are as of June 2. * APY is available through Aug. 15, 2008