Online savings accounts pack a big punch

Saving money. Everyone is thinking about it. Whether it’s cutting back on small expenditures, putting off big ones or simply squirreling away a little from each paycheck, most Americans are trying to build a soft cushion to catch themselves in hard times.

Tucking that extra something away in a bank savings account may be the most traditional route, but it’s not necessarily the smartest, said Bankrate.com senior financial analyst Greg McBride. Most banks barely approach 1 percent interest rates on savings accounts, and many don’t even come close to that.

As people look for ways to maximize their effort, more are turning to online savings accounts, where interest yield rates are well below what they’ve been, but still substantially better than brick and mortar banking institutions.

” Letting savings pile up in a savings account or checking account at the big bank on the corner isn’t going to cut it,” McBride said. “But seeking out a top yielding savings account will give you the most bang for your buck.”

Right now, the average online savings account yield is about 1.7 percent; a traditional bank is around 0.4 percent, McBride said. Before the recession, online accounts had yields as high as 5.5 percent.

Still, numbers don’t always tell a complete story. There are pluses and minuses to each approach, and they should be examined before making a decision. Here are some factors to consider:

Getting your money quickly

Advantage: Brick and Mortar. Walk up to any bank and you can withdraw cash from your savings account immediately. However, with an online savings account, the turnaround could take about two to three days. There are some online savings accounts that come with ATM cards. If you’re a disciplined spender and won’t abuse the easy access, this might be a good option.

Personal service

Advantage: Brick and Mortar. Some people prefer the personal relationships they build with their local banks. Visit often enough and the bank employees may know you on a first-name basis. If this is important to you, then an online savings account is not a good alternative. However, if you already complete most of your banking transactions online or rarely stop into your local bank, you won’t miss much by using an online savings account.

Security

Advantage: Even. Whether you have a local bank or an online account, it is critical that you make sure the place holding your money is FDIC protected. This will insure your account, no matter where it is, up to $250,000. Identity theft is a huge problem throughout the country and banks have taken precautions to try and protect their customers’ assets. This applies to internet banking and local banking, alike.

Convenience

Advantage: Online savings accounts. There are many advantages to internet accounts. When you set up an account, you can do so linking your online account with your local bank checking account. This makes it easy to transfer funds automatically from one account to another. If you are paid in cash or do not have easily accessible internet service, you’ll want to use a local bank or credit union.

Fees

Advantage: Even. Be sure to ask both your local bank and online account institution about any minimum requirements or additional fees related to the account. It’s important to know about minimum balances, transfer fees and other extras that pinch away at your savings.

And Then There Were Numbers

Advantage: Online Savings Account. In terms of what you get financially in return, this is a slam dunk. The difference is significant now, and will become even more so over time, McBride said.

“Consumers in this economic environment are becoming more aware of their need for saving and want to know what their money is earning for them,” McBride said. “This growth [ in online savings account] trajectory is certainly going to continue. Savers that don’t seek out better yields are leaving money on the table.”

How are you saving? Are you comfortable with an online savings account? Which online banks would you recommend? What has been your experience?

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7 comments Add your comment

David Holcomb

September 25th, 2009
12:59 pm

http://www.Darby-Direct.com is paying highest I know of now which is 2% They are headquartered in Vidalia, Georgia and are FDIC insured. Accounts are limited to Georgia residents only.

Leslie

September 25th, 2009
8:37 pm

What about ING or maybe INGDIRECT? A supervisor of mine once mentioned that 4+ was the interest on that company’s savings.

Dee

September 25th, 2009
10:05 pm

I’ve had an ING Direct account since 2006 and I love it. The rate was 5% before the recession when local banks were like 1%. It has dropped down significantly I think it was 2% at last check but I have no complaints. They even give you a small bonus if you refer a friend that opens an account.

BTW-I love this blog and read it EVERYDAY! Keep doing what you are doing!

Tim Teeball

September 26th, 2009
9:01 pm

ING Direct is now down to 1.3% APY and has been since 9 Sept. I’ve had account
with them since ‘03.

J Davis

September 30th, 2009
1:22 pm

Enter your comments here
HSBC direct is at 1.45% as of 9/2009.

Doctorset

November 20th, 2009
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December 6th, 2009
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