5 Best Online Savings Accounts
Having a savings account is pretty much taken as an article of faith among those in the personal finance world. You are supposed to have a savings account — and you are supposed to look for the highest yield or interest rate.
In many cases, the highest yield is likely to come from an online source because of their limited services and low overhead.
Pros and Cons of Online Savings Accounts
Before you decide to open an online savings account, it's important to research your options and understand the realities that come with online savings accounts.
Better Interest Rates
The main advantage to an online savings account is the higher yield. Traditional brick and mortar banks are paying yields of between 0.1% and 0.3% right now. But if you put your money in an online savings account, you could earn a yield of around 1%. While this is hardly “high yield” when compared with the 4% and 5% yields common prior to 2008, it is still better than what you will get at a brick and mortar bank.
Inconvenient Access to Funds
The biggest downside to an online savings account is your access to the funds.
While you can mail paper checks to some online banks for deposit, it’s more common to transfer money from your checking account into your online savings account. And, if you want to withdraw your money, chances are that you need to transfer it from your online savings account to your primary checking account. This can take three to four business days — which can problematic if you need your money immediately.
Some online savings accounts have ways around this, though. You might be able to link your online savings account with an online checking account with the same bank. You can then instantly transfer the money to the linked checking account and use the debit card to withdraw the money from the online checking account.
Finally, there are some banks that will send you an ATM card for use in withdrawing money from your account. You need to be careful in these cases, since you might end up paying ATM fees. Your bank might not charge you, but the bank that owns the ATM may. Some online banks reimburse consumers for all fees, though. This can be a way to access your money quickly and conveniently without worrying about ATM fees.
Which Online Savings Accounts Are the Best?
When deciding which online savings account is likely to work best for you, start out by looking at interest yields. You need to look beyond the Annual Percentage Yield (APY), though. Some of the items to consider include:
- Minimum balances
- Introductory periods
- Customer service
- FDIC insurance
With an online savings account, it is also important to consider how you will manage your funds. An easy-to-navigate website is essential if you plan to do the bulk of your banking via the Internet. Many online banks provide live chat so that customers can contact support quickly and easily.
Here are five of the best online savings accounts, all of which are FDIC-insured.
1. Capital One 360
Formerly known as ING Direct, Capital One 360 (detailed review here) offers the same great rates and service. Just like before, there are no fees and no minimums to open an account. Plus, if you're already a Capital One checking customer, your accounts can be automatically linked. Transfers are free and easy.
Ally Bank offers a savings account with a yield of 0.84% annually. There is no minimum account balance required to receive that rate of interest, and you don’t need to maintain a particular balance to avoid fees. Ally offers a number of savings products, including options for high-yield CDs and IRAs.
This bank generally receives high marks for customer service. The website is easy to navigate, and you can call customer service anytime of the day, as well as access live chat.
This is yet another company better known for its credit offerings. However, Discover has a banking division, and you can open an online savings account with a yield of 0.80%. Discover also offers a money market account with a yield of 0.70%, and a five-year CD with competitive 1.50% APY.
In order to open an account, you do need $500. Other than that, there is no minimum balance to maintain, and no monthly maintenance fees. Finding the customer service information is a little more difficult on the Discover site, but you can call 24/7 or send an email.
4. American Express Personal Savings
When we think of American Express, most of us think of credit cards. However, you can also open a personal savings account through American Express Bank, FSB. The current APY is 0.85%. There are no fees and no minimums with this savings account. American Express Bank also offers competitive CDs.
The website is fairly easy to use, and you can contact a customer service number 24 hours a day, seven days a week.
One of the more interesting banks right now is EverBank. If you are a serious saver, this might be the right fit for you. The Yield Pledge Money Market account comes with a very attractive introductory rate: 1.10% for first-time account holders for the first six months on balances of $50,000 or less. The first-year APY is as high as 0.86%. After that, EverBank promises that the yield will be in the top five nationally.
You need $1,500 to open this account. The rate you actually receive for various accounts, from an interest-bearing checking account to a jumbo CD to a savings account, is based on your balance. Many customers like EverBank, especially those with high balances.
The website is fairly intuitive, and you can find the phone number to call the bank, but there isn’t information about hours when the phone lines are staffed.
In the end, you have to decide what you want from your online savings account. Consider your options and whether or not you will need immediate access to your money. Additionally, pay attention to minimums. It doesn’t do you much good to open a high yield account if you don’t have the balance to qualify you for the best rates.
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