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Online Savings Accounts Provide Benefits Beyond Yield

These days, savers are bemoaning the plummeting interest rates on online savings accounts. Just two years ago, rates were 4%, 5%, even 6%. Now most online savings accounts pay yields less than 2%. Although I did write about alternatives to high yield savings accounts, I still think everybody should have an online savings account (read Banking Tips and Reviews for more information on getting an online savings account). Here’s why:

Online Savings Accounts Are Separate

The top reason to have an online savings account—even if the interest rate falls to levels you could get at your own brick & mortar bank—is that the online savings account is separate from your checking account. When you put money into that savings account, there is a physiological barrier between that money and the funds you spend every day. Having those separate accounts makes it easy to pay yourself first and forget that savings even exists until you really, really need it!

Online Savings Accounts Are Liquid

Although some of the alternatives I mentioned (like CDs and social lending notes) are good for long-term savings, they’re not right for emergency funds and short-term savings because they’re not liquid enough. If you need money, it can take a while to get, and if you can withdraw it, you’ll probably lose out on some or all of the returns that you would have earned. A high yield savings account makes it easy to transfer funds to your bank account in two days or access cash instantly via ATM card if you’re in an emergency.

Online Savings Accounts are Insured

Like all reputable U.S. banks, online high-yield savings accounts are insured by the FDIC for up to $250,000 per account. That means your short-term savings won’t lose value or disappear—even if the bank should go under. In these rocky times, that insurance is more important than ever.

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.