Why People Are Switching to Online Savings Accounts

Today, everything is online – including your money. Companies pay employees directly online via direct deposit, and you’re able to pay bills with online bill pay, handle all of your banking needs, and even access your money right from your smartphone. It’s because of these new internet capabilities that people rarely go to local bank branches — and how you can get a higher APY with an online bank account.

Higher interest, or APY, is why people are switching their savings accounts. As of July 2018, according to MagnifyMoney1, HSBC is offering a 1.80% APY, AMEX and Ally offering 1.75%, and PurePoint Financial offering as much as 1.90% APY, many of these with low minimum opening balances. Getting higher interest is as easy as opening a new account.

Should You Use an Online Savings Account?

An online savings account is a great alternative to a traditional bank. Unlike brick-and-mortar banks, online-only banks focus on helping you build your savings. The overhead costs of brick-and-mortar banks are very high, and they pay for those operating costs by charging high fees and paying low-interest rates. Online-only savings accounts don’t have that overhead, allowing them to focus more on customers’ needs.

Online savings accounts are electronic and can be accessed from your mobile device or your computer over the internet. Many traditional banks such as Wells Fargo offer online savings accounts, but they don’t have the same robust features offered by banks located solely online. These alternatives are best for people who are technologically savvy, short on time, and want to build their savings faster.

Online banks offer 24/7 access to your account through their online portals, and you can electronically transfer funds to and from your account in seconds. Online-only savings accounts, just like traditional banks, are insured by the FDIC allow you to enjoy up to $250,000 of protection for the deposits you make.

If you’re short on time and find it difficult to make it to your physical bank branch, an online savings account is a great choice. These banks are perfect for busy people. You can access your account from anywhere and perform all of the exact same functions that you would at a bank location – except you don’t even have to be near a branch.

The Advantages of Using Online Savings Accounts

Online savings accounts offer a number of additional features and benefits that traditional savings and checking accounts do not. While ValuePenguin2 reports that the average savings interest rate for bank savings account is just 0.06 percent, online savings accounts often offer rates that exceed 1.2 percent – and some national, traditional banks have savings account interest rates of as low as 0.01 percent. To put this in perspective, consider what it would mean to place $10,000 in a traditional account paying 0.01 percent versus an online-only savings account paying 1.2 percent. After one year, the $10,000 deposit in a traditional account that pays 0.01 percent interest would give you just $1. By contrast, the same $10,000 placed in an online-only savings account that pays 1.2 percent would yield an extra $120. This clearly shows the benefit of choosing an online savings account over a savings account at a brick-and-mortar bank.

In order to increase their profits and to pay for their overhead, traditional banks are infamous for charging high fees. Some banks charge monthly maintenance fees for their savings accounts which exceed the interest you might earn. They may also charge fees if your account balance drops below a certain level, fees for using ATMs at another bank and fees for insufficient funds or overdrafts. By contrast, most online-only savings accounts charge much lower fees or no fees. Some online-only accounts do not have minimum opening balances and do not charge monthly maintenance fees. You are able to use your ATM card at any ATM without being charged ATM fees, and you have the ability to deposit your checks electronically.

Like other banks, online-only banks are insured by the FDIC and offer the same protection levels. Different banks may offer different perks and bonuses to you when you make the switch, so it makes sense for you to research your options before choosing an online-only savings account. Some people choose to keep their traditional checking accounts while moving their savings to an online-only bank. Others choose to cut the cord with their traditional banks completely, moving all of their banking to online-only banks. Whichever option that you choose, opening at least a savings account with an online-only bank can offer multiple benefits that you simply can’t get from a traditional bank.

How to Find the Best Online Saving Services

Unlike a traditional bank, online savings accounts offer benefits that easily suit you, your busy life, and your financial needs. Who wouldn’t want to make more interest, pay lower fees, and have all of a bank’s services right in your pocket? The internet has made online savings services the better choice for your finances.

If you’re ready to make the switch to an online savings account, it’s easy to do so. You just need to do your research before choosing any account you find online – compare options by performing an online search. This will allow you to make sure you’re finding the best interest rates, the lowest possible fees, and a reliable, trustworthy online bank.

Featured Tip

Want to save more money? Cut out your cable bill. 22 million people have already ditched their cable companies according to Variety.