Welcome to American Banking News’s online savings account guide. The purpose of this section of the website is to help you understand, research and choose an online savings account.
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An online savings account, sometimes referred to as a high-yield savings account, is a savings account that is primarily accessed through the internet instead of by visiting a branch of a bank. Typically online savings accounts will have significantly higher interest rates than savings accounts that you would find at a major national bank, such as Wells Fargo, Citibank or Bank of America.
Higher Interest Rates – High-Yield Online Savings Accounts typically have much better interest rates than other banks. These banks have much lower overhead than traditional banks because they do not have branches and large numbers of employees to support. This allows them to offer their customers much better interest rates than they might otherwise be able to receive. As of September 1st, 2009 BankRate.com reports that the nationwide average interest rate for a savings account is 1.17%. By putting your savings in an online savings account, you can earn 1.40%-2.0% APY on your money depending at which bank that you save with.
Online Banking - When you put your money into an online savings account, you have access to your account 24/7. You can view all activities in your savings account at any given time and know exactly what your account balance is.
FDIC Insured – Just as a savings account from a bricks-and-mortar bank would be insured by the Federal Deposit Insurance Corporation, your online savings account is also insured up to $250,000 in the event that the bank you are with fails.
Referral Bonuses – Some banks, such as ING Direct, offer their customers bonuses for referring their friends. For example, ING Direct will give you a $10.00 bonus if you refer a friend that opens an account and deposits $250.00 into it. Your friend will also earn a start-up bonus of $25.00 if you refer them.
Account Access – When you have your savings in a high-yield online savings account, your only access to transfer money out of your savings account to your bank is through their online banking interface. If their website has trouble, you may be delayed in moving money in or out of your account. If this happens, typically you can call the bank’s customer service number and they will be able to help you make the transfer over the phone.
Varying Interest Rates - Banks that offer online savings accounts have a tendency to start out with a very competitive interest rate, then drop their interest rates over time as they reach the amount of deposits they are hoping to receive. If you find that the rate you are receiving is no longer competitive, you can easily open another online savings account at a different institution that will offer you a better rate. You can also mitigate this issue by choosing an online savings account that has had a history of competitive interest rates.
When choosing an online savings bank to open an account with, there are many factors to consider. Foremost, you should look at the interest rate. Does the online savings account you are looking at offer a rate of return that’s better than most other accounts? If you can answer yes to that question, the account is worth considering, but there are other factors you need to think about as well, including the following:
Access Reliability – Some banks that offer online savings accounts have had reliability issues. If their website is down for technical reasons, it’s just like the bank is closed to you. You can’t make deposits, withdraws or even see how much money you have in your account. Read reviews of the bank you are looking at online before throwing in any of your money, make sure that the bank’s online banking services don’t have any glaring reliability issues
Bank Stability – Behind each online savings account is a bricks and mortar bank. As we’ve learned from the most recent recession, not all banks are on an equal financial footing. Make sure that the bank you are considering signing up with is on a solid financial footing. To do this, head to bankrate.com and check the bank’s stability rating. You should look for a bank with 3 stars or better on BankRate
Ease of Use – The online banking software that banks use to power their website can very quite dramatically in quality. ING Direct currently has one of the best user interfaces to work with and there are definitely others that need improvement. If you’re going to be using their online banking software on a weekly basis, you’re going to want to use something that’s good, not something that looks like it was cobbled together by a group of junior developers.
Signup-Hassle – The signup process for some online banks is much more difficult than others. Some actually force you to print out an application and mail it in. Others require you to fax them information or mail in proof of identification. Before signing up with a bank, review their signup process and make sure it’s not too much of a hassle.
Fees – Some online banks promote the fact they charge absolutely no fees. Others are consciously quiet about what fees they charge. If you dig through their website, you’ll probably be able to find what fees you’ll be charged. Some banks will charge you a monthly service fee if your balance goes below a certain threshold. Others will charge you fees for statements, checks (if you are using a money market account), and certain types of transfers. Make sure that the bank you are with charges no or minimal fees.
Based on the personal experiences and research of our editorial team, we can recommend that our readers open online savings accounts with the following banks. We have used these banks personally and can attest that they offer competitive interest rates, an easy to use interface and satisfactory customer service.
ING Direct – ING Direct was a pioneer in the world of online savings accounts. You can currently earn 1.40% APY (As of 9/1/2009) with ING Direct’s Orange Savings Account product. ING Direct has an excellent web interface, free bill pay, free ATM access at 35,000 ATMs nation-wide and you can apply online. ING Direct requires no minimum balance to open an account and has no fees to speak of.
FNBO Direct – FNBO Direct is First National Bank of Omaha’s online savings account offering. You can currently earn 1.50% APY (as of 9/1/2009) with FNBO Direct’s online savings account. FNBO Direct’s Online Savings Account has no fees or minimum balances. You can apply for an account online. FNBO Direct also offers a branded credit card that when used will give you 1% cash back into your FNBO Direct online savings account.
HSBC Direct – HSBC Direct was an early player in the world of online savings accounts. You can currently earn 1.35% APY (as of 10/5/2009) with HSBC Direct’s High-Yield Savings Account. Their account has no minimums and no monthly fees. You only need $1.00 to open an HSBC Direct High-Yield Savings Account.
American Bankign News has partnered with Money Rates to provide you the most up-to-date interest rates available. View current rates.