Online Savings Accounts 101
September 5th, 2005 by David Weliver
Looking for a high yield savings account with no minimum balance requirement and the ability to withdraw anytime? It’s something you can’t find at your local bank or credit union, where rates for simple savings account rarely eclipse 2%. Online savings accounts, however, provide an easy way to stash cash in a federally-insured account and typically offer much better interest rates than brick and mortar savings banks – currently between 4% and 5% APY.
What is an Online Savings Account?
Like any savings account, an online account is a bank account designed for short-term savings or for savings during a time when you might need access to the funds. They can also be useful for protecting money from inflation during times you cannot tolerate the risks involved with more volatile investment strategies. Also like regular savings accounts, online accounts are insured by the Federal Depositor’s Insurance Corporation (FDIC) for up to $100,000, meaning your money is safe in the event the bank goes under, the stock markets crash, or aliens raze the Eastern Seaboard.
How do Online Savings Accounts Work?
Rather than investing in physical banks to support customer accounts, online accounts accept deposits and withdrawals solely online, thus tremendously reducing the bankers’ cost of doing business. This, in turn, allows the online account to offer a much better interest rate.
Online transactions are processed quickly and securely via an electronic funds transfer (EFT) with your existing checking account, whether or not you already bank online. You can fund an online savings account with an electronic check simply with just the routing number and account number on a voided check. EFTs are typically completed in 3-5 business days.
Just as there are no physical banks at which you can make a deposit, you will not receive monthly statements in the mail; you can only check them online.
How do I Choose an Online Savings Account?
The best online savings accounts offer close to or just above a 5% annual rate and have few restrictions on minimum initial deposits or balances. Some, like ING Direct, even offer a $25 account opening bonus with an opening of at least $250. While interest rates and opening bonuses are one factor to consider, there are many others. Read High Yield Savings Accounts Compared to find an account that’s right for you.
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