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)
Copyright © 2005 - Bob Rankin - All Rights Reserved