Those searching for the highest interest rates on saving accounts are getting the same recommendation: Find out about online or Internet savings accounts. Unlike savings accounts housed in brick-and-mortar financial institutions, those exist only in cyberspace. Because of that, the financial institutions save the expense of maintaining a physical presence and having personnel on the premises directly serving customers. They frequently pass along those savings in higher interest rates and even opportunities for premium interest rates.
Since there are so many options for online savings accounts, comparison shopping is necessary. Bankrate.com provides information. Also, you can input on the web the keywords “online savings account.” Those on your network who are financially savvy might already have experience with some. Essentially, you want to get the facts about.
- FDIC insurance for up to $250,000. This is a must.
- The interest rate and the related terms and conditions. Read and re-read the fine print. Is the rate introductory and, if so, how is it computed after that. Is there daily compounding. What does it take to qualify for premium rates.Often higher interest rates require a certain initial deposit and maintaining a daily minimum balance. If the balance dips below a certain level, there could be penalty fees. If you cannot “afford” to have so much tied up in the account, you might be better off going with a lower interest rate which does not impose the balance requirements. Or, another alternative is to purchase a Certificate of Deposit which offers even a higher rate than these accounts.
- Monthly minimum contribution. Some saving accounts require that. Is this something you can keep up with.
- Track record for customer service. Reviews can be found online and in general articles on the best performers in this category. This is an important factor because you will only get information and help through phone calls and email.
- Any fee for opening account.
- Any monthly maintenance fee.
- Restrictions on the monthly number of transfers and deposits and what are the limits on the amounts.
- Is the website simple to navigate .
Keep in mind that online savings accounts are subject to the same federal Regulation D for brick-and-mortar accounts. That limits withdrawals to six monthly. More than that could result in penalties.
Higher interest rates are only one factor in making a decision whether to open an online savings account. Yes, there are drawbacks to these. Unlike savings accounts in brick and mortar, it can take up to several days or even a week or more to have funds transferred into another account. These accounts are usually not structured for facilitating financial transactions. They are more geared to be vehicles for savings. Therefore, this might not be the best method to prevent overdrafts for your checking account. For that, you could have your checking account linked to a brick-and-mortar savings account. Increasingly, consumers are finding it useful to set up a number of accounts.
Usually you cannot write checks on the account or access funds at an ATM. As for deposits, those are all done wirelessly or by snail mail. That can present an obstacle to you.
Overall, there is more you need to know about online savings accounts than the brick-and-mortar ones you might have grown up with. After you find out the facts, you might decide to try one or a few of them. At the very least you can gain access to relatively high interest rates in a low-interest rate environment. Once you have the account or accounts, then you can evaluate if the tradeoffs are “costing” you too much in time, fee penalties, and the inability to discuss your concerns or fix problems in person.