The popularity of online banks has skyrocketed in recent years, due in part to advancements in technology and the ease of access they provide. Online banks have several advantages over traditional brick-and-mortar banks, including their savings account interest rates, convenience, and lower fees.
Interest rates are a significant factor to consider when choosing an online bank for your savings. Online banks generally offer higher interest rates on savings accounts than traditional banks. For example, Ally Bank currently offers a savings account interest rate of 0.50%, while Bank of America offers just 0.01%. Over time, these higher interest rates add up and can make a significant difference in how much money you save.
In addition to interest rates, online banks offer enhanced convenience for savers. Because they are entirely digital, online banks allow you to access your savings account from anywhere, at any time. You can easily transfer money between accounts, set up automatic savings plans, and monitor your savings progress through online banking portals or mobile apps.
Furthermore, online banks often come with lower fees, due to their lower overhead costs when compared to traditional banks. Many online banks do not have monthly account maintenance fees or minimum account balance requirements, which can easily add up over time. Online banks may also offer free ATM withdrawals, despite having a smaller network of ATM locations.
Interest rates are the percentage rate paid on deposits in a savings account. They are a critical factor in savings because they determine how much your money earns over time. Online banks typically offer higher savings account interest rates than brick-and-mortar banks, thanks to their lower overhead costs. For example, Chime Bank offers a savings account interest rate of 0.50%, while Wells Fargo offers just 0.01%. The higher interest rate offered by Chime bank amounts to $50 earned in a year for every $10,000 deposited in the account.
One of the reasons online banks can offer higher interest rates is that they do not have the same overhead costs as traditional banks. Online banks don’t have to pay for rent, utilities, or staffing for brick-and-mortar branches. These savings are passed on to customers in the form of higher interest rates.
Additionally, online banks may offer higher-yielding savings accounts, such as money market or high-yield savings accounts, which typically offer even higher interest rates than standard savings accounts. For instance, Discover Bank offers a money market savings account that currently yields 0.40%, while the national average for traditional banks is only 0.06%. These higher-yielding accounts offer maximum flexibility with far fewer risks.
With higher interest rates, it is easier to achieve your savings goals. Over time, the higher earnings on your savings accounts can compound and grow into a considerable sum of money. Therefore, by choosing an online bank, you stand a chance to earn more from the money you have saved than if you were to use a conventional savings account.
With online banking, you can access your account from anywhere, at any time. You can view your account balance, transaction history, and even deposit checks from your mobile device or computer. This means that you don’t have to visit a physical branch during business hours to manage your savings account, which is particularly helpful if you have a busy schedule. Moreover, most online banks offer 24/7 customer service, making it easier to get help when you need it.
Transferring funds between accounts is incredibly simple with online banking. You can easily set up automated transfers to save money at regular intervals, ensuring that a portion of your income goes straight to your savings account every month. Some online banks even offer “round-up” programs that round up debit card transactions to the nearest dollar and deposit the difference into your savings account.
Another way online banks offer convenience is through the use of budgeting tools and apps. Many online banks provide various tools that allow you to track your spending habits, plan for future expenses, and set savings goals. With these tools, you can create a clear picture of your finances, determine where you can cut back on expenses if necessary, and allocate funds towards savings accordingly.
Lastly, because online banking doesn’t require a physical branch, it’s much faster to open an account and get started with saving money. The application process involves submitting a few personal details, and often no in-person meeting is necessary. This type of account opening can also save you the time of sitting down with a representative at a bank and going through lengthy paperwork.
Online banks typically have lower fees for account services and transactions compared to traditional banks. For instance, it is rare for online banks to charge monthly account maintenance fees, which can save you upwards of $10 or $20 per month on fees charged by traditional banks. Moreover, online banks do not impose minimum balance requirements or penalties for dipping below an account’s minimum balance. In contrast, traditional banks often charge a fee if your account falls below a set balance.
Online banks typically don’t have ATM fees for withdrawals either, since most offer free withdrawals from any ATM around the world. Traditional banks may charge you fees when withdrawing cash from another bank’s ATMs, either through withdrawal fees charged by the ATM owner or a direct surcharge imposed by your bank.
Additionally, an online bank’s transparency regarding fees and rates also helps you make informed decisions. Fees for overdrafts, late payments, wire transfers, and even foreign transactions are disclosed upfront and made clear in their Terms and Conditions. Customers can also access a break down of their account fees and transactions at any time.
Lastly, online banks often offer higher returns on bank deposits, which can significantly increase long-term savings. These returns may also waive fees on specific accounts if you perform qualifying transactions or have a minimum average monthly balance. Compare that to traditional banks that don’t offer much flexibility with such rewards.
Online banks use encryption technology to protect sensitive information and transactions from hackers and other cybercriminals. Most online banks use two-factor authentication in their online banking portals, wherein customers must enter a code sent to their registered phone number or email address to complete a transaction, ensuring the safety of online banking.
Nearly everything you do with online banking is recorded and monitored, making fraud prevention and threat detection easier. For instance, if a transaction seems fishy, banks can investigate and revoke it quickly, which can be harder for traditional banks after the funds have been withdrawn. In this regard, online banks have the edge since they have real-time access to each transaction, enabling a more real-time response.
In addition to their own security measures, online banks are also FDIC-insured. This means that funds deposited in an online bank are backed by the U.S. government up to $250,000 per depositor, per account type. This insurance guarantees that, in the unlikely event of the bank failure, you will get back your deposit money. For example, the popular online bank Ally Bank is FDIC-insured, and this coverage applies to every account you open with them.
Most online banks offer around-the-clock customer support via telephone or chat, ensuring that you can quickly report an issue or resolve a problem if your account has been compromised or suspect anything suspicious occurring.
First, it’s important to research and compare different online banks to find the right one that suits your needs. You should compare key factors such as interest rates, fees, minimum balance requirements, account features, and customer reviews.
Second, ensure that the online bank you choose to keep your savings is FDIC-insured. As mentioned, FDIC insurance guarantees that your deposit will be refunded up to $250,000 per account-type if the bank closes unexpectedly. This ensures a backup plan if anything happens to your account’s funds.
Third, make sure that the online bank offers a mobile app or a user-friendly website that allows for easy account management and account tracking. Online banks should allow customers to easily deposit their checks without having to visit a bank branch in person.
Fourth, consider online banks that offer rewards or incentives for opening accounts or saving money with them. Some online banks offer cash or other incentives, such as cashback rewards for spending or saving plans matching your deposits or some percentage of it.
Fifth, remember customer service. You can make things a lot easier by opting for an online bank that provides useful customer service ready to help you with any questions or concerns you may have. The best online banks provide a variety of communication channels, such as phone, email, and chat. They also have a comprehensive FAQ section and user manuals that could guide and answer your questions anytime instantly.
In conclusion, several factors come into play when shopping for the best online bank for your savings account, such as interest rates, fees, security, features, and customer reviews. Research well and choose the right bank that meets not only the basic requirements but also serves your financial needs. It’s essential to keep an eye out for FDIC-insured banks, user-friendly banking portals, and online banks that offer rewards and incentives for opening accounts or saving money. Of course, an excellent customer service experience should always be a deciding factor.