Online Savings Accounts Make Sense
March 02, 2009
One of the simplest places to park cash is an online savings account. FDIC-insured banks listed on MoneyRates.com like ING Direct, Chesapeake Bank, and Bank of Internet will allow you to open a savings account online in less than ten minutes. Unlike many savings accounts at brick-and-mortar banks in your local area, an online savings account will quite often have no monthly minimum balances and no monthly fees. Online bill payment service and bank transfers are also common account features. And many online banks will even reimburse ATM fees for withdrawals made from non-member ATMs. Another aspect of these online savings accounts is that the rates of return are actually competitive. With many Americans having lost much of their wealth in the collapse of the stock market and real estate market, the stability of an online bank savings account has become significant. Keeping emergency cash compounding at 3% a year is not quite as illogical as it was previously considered.
1997 - 2009
Americans contemplating the stock market in the year 1997 were facing a Dow Jones Industrial Average trading around 7,000, but with a seemingly unlimited upside. A lot has happened since 1997, but the Dow Jones Industrial Average has retraced its path all the way back to the same level as 1997. Individual investors may have lost or made money along the way, but the index on which market analysis is based has had a 0% 11-year return. Placing money in cash alternatives like money market accounts, savings accounts, or CDs would have been a more profitable choice for this eleven-year period. By finding the best rates on FDIC-insured bank deposits, an investor could have fairly easily earned 6% along the way. A 6% interest rate would have turned a $10,000 investment in 1997 to a balance of over $18,900 today if interest was compounded. Even someone who used their local bank (instead of a website like Money-Rates.com) and only earned 4% over these eleven years could have accumulated over $15,000 in their savings account by 2009 from their initial $10,000 investment. While stock market proponents will be sure say that we have cherry-picked the years in the above example and that the stock market historically outperforms savings accounts, the point is that bank savings accounts can provide the dependable returns that the volatile stock market cannot. Even the most aggressive financial planners are now increasing the amount and percentage of cash that they recommend household should hold in lieu of stocks and bonds.
2009 and beyond
There is no question that whether it is 2010, 2011, or even beyond 2012, that an economic recovery will eventually take place. When consumers are employed and prices are stable they will start spending money again. Banks will increase lending and the economy will be strong. Exuberance, either rational or irrational, will also return to the markets. However, most financial planners are advising that American households should not return to their debt-laden days of previous years. A cash position of 10% to 20% of net worth, once thought inappropriate, is now recommended to protect against the loss of jobs or other economic emergencies. The best vehicle for holding cash is utilizing the highest yielding bank deposit accounts. The money market accounts, savings accounts, and checking accounts listed by online banks on MoneyRates.com all provide FDIC insurance, liquidity, and rates higher than those found at local banks or by buying U.S. Treasuries. Find the right bank account for your cash today.
