How to Choose an Online Savings Account
March 24, 2009
We all know that a 2.25% rate is a better deal than a 1.25% rate, but evaluating different online savings accounts involves more than just comparing rates. Listed below is what you need to consider when shopping for the best online savings account:
An online savings account is as simple as it gets. Don't make it complicated by picking a bank that charges fees for savings account transactions. Many of the banks listing high-yielding online savings account on MoneyRates.com do not charge fees for withdrawals or for the transfer of funds between accounts. Before opening an online savings account, carefully read the account disclosures to determine if there are any extraneous fees that the bank is likely to charge for what might be a normal savings account transaction for you.
It can be very painful to try and keep your account balance above a bank's minimum monthly balance requirement. If your average monthly balance falls below a required minimum, then the bank will either drop the rate your account earns or charge a monthly maintenance fee. There are plenty of banks that offer $1 or $100 minimum balances that are easier to maintain. Unless you plan on keeping a large balance in your online savings account, avoid the monthly juggling of your funds that balance requirements can invoke.
Rates and Yields
The interest rates offered by banks on deposit accounts are as low as they have ever been. It is hard to get excited about the difference between a 1% and 2%, but anytime you can double your income on an investment it is worth the effort. One aspect of savings accounts is that the rates are variable and can be changed at the bank's discretion. In this regard an online savings account, such as the ones offered by banks listed on MoneyRates.com, are much better at holding their rates competitive than local community banks. The bank down the street may run a great rate special for a few weeks or months, but banks like ING Direct, Bank of Internet USA, and Centennial Bank have been online savings rate leaders for years.
The ability to electronically transfer funds between your online savings account and a checking account at the same bank or another bank is a must. The days of carrying a passbook to your bank to withdraw funds from a savings account are obsolete. Instantly transferring our money between accounts can maximize interest earned, prevent late payments fees, and avoid financing charges from accruing on your credit accounts.
Hard Pull vs Soft Pull
Your credit score can be affected by the number of inquiries into your credit score made by companies. Some banks will do a "hard pull" of your credit rating that will be visible for two years. Other banks will do what is called a "soft pull" which is not visible on your credit report to anyone but you. A soft pull is a credit review that does not affect your credit score or rating. If it is important to you that you minimize the number of hard pulls on your credit to keep your credit rating high, determine the policy of the bank at which you are considering opening up an online savings account before applying.
The FDIC insures deposit accounts up to $250,000 per depositor. If you are worried about a savings account that you find online, check FDIC.gov to verify details and information about the bank.