Online Savings Account
I've heard that online banks offer much better interest rates, but all the accounts I've found so far have pitifully low rates. Why are interest rates so low, and are there any online savings accounts that offer higher yields? |
Opening an Online Savings Account
A lot of people are seeking the elusive online savings account that pays "high yields." It's out there somewhere, rumor has it. It's just not available in your home town, for some reason. Here are some reasons why:
Banks and credit unions pay you interest on savings account balances because they lend your money to other people and charge them higher interest. The difference between the interest banks earn the interest they pay you is the banks' profit on savings accounts. Have you noticed what's happened to interest rates of mortgages, bank automobile loans, and other major lending instruments?
That's right, "interest rates have never been lower" on money borrowed from banks. So if a bank is going to make a profit on savings accounts then interest paid on savings accounts must be even lower.
What's advertised as a "high yield online savings account" may pay you as little as 0.05 percent - one-half of one-thousandth! The mid-range of "high yield online savings accounts" is about 1.25 to 1.5 percent, according to Web sites that claim to track the best online savings accounts. At that rate, it might be more profitable to try walking around town playing the "two tens for a five" game.
Which Online Savings Account is Best?
Money Ning is one rate-tracking site that lists several "high yield online savings account" providers, and claims to update its rate info monthly.
EverBank led the pack in October, 2010, paying an introductory rate of 2.25 percent for the first three months after you open a savings account. Then the rate drops to 1.51 percent. EverBank paid the highest online savings account rates according to several rate-tracking sites. It can't hurt to call them. But ask the right questions to avoid surprises after you open your account.
Many high yield online savings accounts have minimum deposit requirements. You may need $100 to $1,500 to open an account, and then you may have to maintain a minimum average daily balance. If your average daily balance falls below the minimum you may see a drastic drop in interest paid.
Ask whether an online savings account is FDIC insured, and if it comes with a free debit and ATM card. Also check how easy it is to move money to and from a savings account online, and whether there are any fees for transferring your money from the online savings account to an account at another bank. Sometimes that's not even possible unless you want to pay an exorbitant wire transfer fee.
Some banks attract new customers with up-front cash bonuses while paying low to average interest rates. It's not unusual to see banks and credit unions in highly competitive urban markets offerings $50 or even $100 cash to get you to open a savings account with them. Usually, there is a waiting period of 30 to 90 days before the bonus is deposited to your account.
The best online savings bank for you depends in large part on what stage of your financial life you are in. Young people are often most interested in high interest rates and low minimum balances, while older folks emphasize security and ease of transferring money between accounts.
If you've used an online savings account, tell us about your experience. Post your comment or question below…
This article was posted by Bob Rankin on 15 Oct 2010
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Article information: AskBobRankin -- Online Savings Account (Posted: 15 Oct 2010)
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Most recent comments on "Online Savings Account"
Posted by:
Shawn Rosvold
15 Oct 2010
Here's a site that claims to update rates daily. http://www.money-rates.com/savings.htm
Posted by:
jr213
15 Oct 2010
I don't know where you got your info from, but I've got a checking account online that pays me an APR of 4.75%. I do have to pay at least on bill online & do 13 Debit card transactions though and get my statement online. Heck , I'm online anyway, so its no big deal, AND 4.75% looks a lot better than .05%. Maximum balance though is $25,000.
Posted by:
Sandra Brown
15 Oct 2010
When I first opened my online savings account at First Nat'l Bank of Omaha (FNBO)in Oct. '08, the interest rate was 3.25 percent APY--much better than Bank of America was offering.
Of course. each time the Feds lowered the prime rate, my rate also went down.The last decrease in May lowered my rate to 1.10 percent APY.
But I'm sticking with them. Ease of use and great customer service. And as the prime rate goes back up, so will my interest!
Posted by:
Lee McIntyre
16 Oct 2010
I've been very happy with ING Direct. (http://home.ingdirect.com/). I've used them for several years. Transferring funds is simple. Rates are competitive. Online statements are easy to read.
On the other hand, I have no idea if they offer ATM cards. I've never used them for anything but savings, and when I need funds, it's about a three-to-five-day wait to transfer to my local checking account, and transfers are free. (According to ING, the transfer time is due to procedures of the national Automated Clearing House, and the wait is not caused by ING. They have an article on their site that explains this.)
They don't send me unsolicited commercial e-mail, and their site is easy to negotiate.
I am in financial services as a profession, and Bob is exactly right about why interest rates are low. If you go back that far, remember the late 1970s and early 1980s. We were paying 14% and 15% on mortgages -- but we were receiving 10% on our passbook savings accounts, too.
When rates are high, they're usually high whether you're paying them or receiving them. It's the same when rates are low.
Posted by:
krishnan
17 Oct 2010
The article could not be clearer.Still ,it beats me ,why people fall for the quick money trick in various forms.
I am from India and the interest rates on savings accounts is much higher.Its is around 5 to 7 and the lending rate around 8 to 9%.
But don't you think that the rates in America are kept unrealistically low?
The stocks in India are booming to unrealistic valuations only because of diversion foreign(read US)money to Emerging markets.
I sure am afraid of a bubble forming in India markets at least
Posted by:
Marc
20 Oct 2010
jr213, please post the name of the bank where you get your 4.75% checking.thanks
Posted by:
David
20 Oct 2010
Ally Bank consistently has one of the highest FDIC insured rates in the United States. I have had accounts for a long time. Service is excellent. www.ally.com
Posted by:
Macedonian
20 Oct 2010
Or you may deposit your money in Macedonia and get 9% to 13% interest on them (depanding on the bank). Up to $30.000 (approximatelly) in one bank for one person is guaranteed by the country :-)
Posted by:
christine jones
27 Oct 2010
The article could not be clearer.Still ,it beats me ,why people fall for the quick money trick in various forms.
I am from India and the interest rates on savings accounts is much higher.Its is around 5 to 7 and the lending rate around 8 to 9%.
But don't you think that the rates in America are kept unrealistically low?
The stocks in India are booming to unrealistic valuations only because of diversion foreign(read US)money to Emerging markets.
I sure am afraid of a bubble forming in India markets at least
Posted by:
Glenn P.
02 Nov 2010
I'm very much an "old timer" -- I remember when a local savings account meant 5% interest! Sheesh!
I guess THOSE times are over and GONE!!!
Posted by:
Safe Saver
16 Dec 2010
I just opened an account at SFGI Direct. High Yield Savings. Paying 1.41% no limit on deposits. Very smooth process and would recommend to anyone looking for a better rate on liquid savings or short term CD money. Best thing is their rate history is very stable no bait and switch on the rate.