4 Things to Consider Before You Open an Online Savings Account
Opening an online savings account is a fairly simple process that offers a number of benefits, from a higher interest rate to convenient access options. But before you switch banks or open an account with the first online bank you find, there are a few things you should consider. (See also: Think Twice Before Ditching Your Current Bank)
1. Interest Rates
Online savings accounts often have higher interest rates than their brick-and-mortar counterparts. This is because they have lower operating expenses and can pass on the savings to their account holders.
When a local bank advertises high-interest savings accounts, customers usually have to meet certain criteria for eligibility — such as providing a larger initial deposit, maintaining a minimum balance, keeping additional bank accounts with the bank, or limiting transactions in or out of the high-yield savings account.
When considering online savings accounts, make sure to compare interest rates and choose a bank offering the highest rate with the lowest requirements or fees.
2. Policies for Deposits and Withdrawals
If you have never used an online bank before, you may be wondering how you make deposits or withdrawals. While each internet bank may have its own policies, the basic functions are similar.
You can mail checks made out to you with a deposit slip, although this can take a while to process. You have the option of setting up direct deposit from your employer to have all or part of each paycheck deposited into your online savings account. Most online banks also allow you to “link” your account to other bank accounts you maintain, such as a checking account with your local bank. If the bank you are considering allows linked accounts, you can set up money transfers from one account to the other. Some online banks contract with brick-and-mortar banks and can accept deposits at certain ATMs.
Online savings accounts will provide you with an ATM card to access money. You can visit an ATM and withdraw cash, or you can use the ATM card like a credit card and the money will be deducted from your savings account. If you link other bank accounts with your online savings account, you can transfer money out of your savings and into the bank account of your choice.
As you compare various online banks in search of an online savings account, make sure you take a look at how to deposit and access your money. If you want to transfer money between accounts, verify that the bank you are considering allows linking. If you're perfectly happy to perform all deposits and withdrawals via ATM cards, make sure they allow that option.
3. FDIC Insurance
Before opening an online savings account, you want to make sure the bank you're considering is legitimate and FDIC insured. Check the bank's website for the “About Us” page and see where the bank has its main office or headquarters, and look for information about FDIC insurance coverage. You should see the FDIC logo or the phrases “FDIC Insured” or “Member FDIC” right on the bank's website.
Finally, to verify that the bank is legitimate, you can check the FDIC's Bank Find database for details on the bank you are considering. If the bank is in fact insured, you'll see the insurance certificate number and can open an account with confidence. If there are banks that claim they are members of the FDIC but do not appear in the Bank Find database, contact the FDIC immediately so the bank can be investigated for potential fraud.
4. ATM Access and Fees
Since the primary method of instantly accessing money in an online savings account is through ATMs, you will want to take a look at which ATMs you're allowed to use and how much the bank charges for each transaction you make. Some online banks even give you rebates when you use ATMs that charge fees, which can really add up to big savings if you use the machines frequently.
Considering each of these aspects when opening an online savings account will ensure you get an account best suited to your needs. Verifying FDIC insurance will protect you against bank failures, and comparing interest rates as well as various bank fees will help you lower your cost of banking and maximize your savings.