Five Things Your Online Savings Account Needs
April 23, 2009
An online savings account is one of the simplest investments that can be made. In ten to fifteen minutes, using a site like MoneyRates.com, an investor can find a high rate on a savings account and set up the account from any computer in the world. Savings accounts offer limited withdrawals, but are really designed to just sit idle and accumulate interest. If you have never opened up an online savings account you might ask: What am I looking for before choosing the right bank? Here are items that are mandatory for finding one of the best savings accounts:
Online Access
Most banks have online access in this day and age. However, just like test driving a new car before deciding to buy the car, it is not a bad idea to test drive the online banking section of the bank's website for which you are considering opening up an online savings account. Many banks will also have a demo section so that you can actually see the online interface that you will use if you become a customer. If you see a savings account special listed in the local paper, pay particular attention to the online banking features of the bank advertising the savings account special. That's because local banks typically have fewer online banking options for their savings accounts than leading national banks like Capital One Bank, ING Direct, and HSBC Bank.
No Tiered Rates or Minimum Balances
Be careful with balance requirements when reviewing a bank's saving account rate structure. Many banks will use a tiered rate schedule in which lower balances earn lower annual percentage yields (APYs). Unless you know for a near certainty that you will remain a high-balance depositor, it is easier to use an online bank that has only one low minimum balance requirement. Use MoneyRates.com to find an online savings account with minimum balance deposit requirements as low as $1, $10, or $100 balance requirements. Then read the bank's disclosures carefully to make sure the advertised rate is good for all balances.
Online Transfers
The ability to go online and transfer funds between your online savings account and another bank account is crucial. Nobody likes to make unanticipated withdrawals from a savings account, but if it means avoiding late payment fees or a delinquency on a credit card, mortgage payment, or other bill; the ability to make a quick transfer of your funds is mandatory. Remember when you open up an online savings account, you cannot drive to a local branch office to withdraw funds and you do not have paper checks to use. Check and then double-check that you can transfer funds electronically before opening an online savings account. This way if you need to access fund quickly, for any reason, you are set.
Competitive Rates
Don't take the bank's word for it that their rate on their savings account is a great rate. Bank of America has a sign in some of their branch offices expounding on their high savings rates, but the regular saving rate is actually only 0.20%. Check MoneyRates.com for a current list of the highest yielding savings accounts available. The banks on this list can change daily, but you can use it make sure that the savings account offer is at least in the ballpark. The difference between investing $25,000 in a 0.20% savings account and a 3.00% savings account after 5 years is over $3,700. Now who doesn't want the extra hundreds or even thousands of dollars you can earn by taking the time to find a good rate on your online savings account?
FDIC Insurance
This one is a no-brainer, but needs to be mentioned. Make sure your savings account is from a bank and not some hybrid product advertised on the internet that is actually an annuity or other non-insured product. Another thing to consider that many online banks will use a different name online than their official FDIC bank name. One example of this is the creative Redneck Bank. This site, which includes a picture of an outhouse, is not shy about advertising their services to a rural target audience. However, Redneck Bank is actually just a division of The Bank of the Wichitas. So what happens if an unsuspecting customer opened up an account through the Redneck Bank website for $100,000, but already had $250,000 on deposit at The Bank of the Wichitas? In this case the customer would be uninsured for the $100,000 because the banks are one and the same and FDIC insurance only extends to $250,000 per depositor. For any potential new online savings accounts that you are considering, verify the bank name under which the FDIC insurance applies to make sure you do not already have a deposit at the same bank.
