New Savings Accounts Come With Perks and Restrictions

Updated on April 11, 2008.

THE DAYS OF earning 4% or more in a savings account aren't over quite yet.

Thanks to a slew of rate cuts from the Federal Reserve (six since September), the current average savings rate is now a paltry 1.55%, according to data from Bankrate.com. However, a few big-name banks, such as Wachovia and Washington Mutual, are aiming to buck that downward trend. They're offering new savings accounts that boast annual percentage yields of up to 5%, a rate that would have been attractive even before the Fed started cutting rates.

But before you get too excited, keep in mind that these accounts are designed to benefit the consumer as well as the banks. The economic downturn has spurred many consumers to drain their accounts to pay off debts. In January, the national personal savings rate was negative 0.1%, according to the Bureau of Economic Analysis. In other words, consumers are spending more than they earn. As a result, banks are feeling the pinch.

In order to lure in new customers and increase deposits, the banks offering these new high-yield savings accounts are also extending other perks, such as matching bonuses, explains Edward Kountz, a senior analyst with Jupiter Research. Wachovia's Way2Save account, for example, offers to match 5% of the amount you save in the first year, up to $300.

But for consumers, the real advantage that comes with these accounts (beyond the competitive rate) is that they gain easier access to their cash than they would with other high-yield banking products like certificates of deposits (according to Bankrate.com, the average rate on a five-year CD is 3.24%). "It's essential in chaotic times to have your emergency account beefed up," says Jean Anne Fox, director of financial services for the Consumer Federation of America, a consumer advocate. "You don't want to tie up your money when you're paying $3 a gallon for gasoline."

Just make sure to read the fine print before you open one of these new savings accounts. Like their high-yield reward checking counterparts, they come with a long list of restrictions and hoops to jump through such as requiring you to link the savings account to a checking account at the same bank. And, in most cases, there are limits to how much money you can put into the account and how long that alluring rate will actually last. For example, Washington Mutual's 5% rate is fixed for 12 months when you open the account. After that, the account is closed and the funds are transferred to a lower-yield, regular savings account.

Even if you can work within those parameters, make sure you'll profit from the higher rate, says Emily Davidson, a finance expert for Credit.com. Someone socking away just $100 a month would earn $11.28 more in interest with a Washington Mutual Savings for Success (5%) than an ING Direct Orange Savings Account (3%), which allows you to keep a checking account at another bank. That's a nice bonus, but one easily eaten up by ATM fees if the bank you choose doesn't have many ATMs in your area, or if you don't meet the direct-deposit requirement to waive the monthly maintenance fee in that linked checking account.

Here are current offers topping the yield charts: