The old-school advice on savings accounts is to just open one and put your money in it. But this advice doesn’t mesh with the current times. The reality is that banks, and specifically online banks, are competing for your dollars. This has created an all-out interest rate war where there is one clear winner: the Online Savings Account.
My dad was a banker. Not a Wall Street banker, but the type of banker you go see to get a mortgage or open an account. He had successful careers, climbing his way to senior management. But if you ask him where to open a savings account, he will still say at your current bank.
Nothing against that advice, but I’m going to say that answer is only half right. Half right because opening a savings account is still a good idea, but you should do a little research first. The problem with blindly opening a savings account at your current bank is the chance of earning little to no interest. Popular “big banks” like Wells Fargo, Chase, and Bank of America offer interest rates of 0.01% on your money. That is a measly $1 in earned interest each year for every $10,000 in the account.
At this rate, you are basically stashing your money under the mattress.
Instead, it is time to consider an alternative. An alternative that has many of the same technological perks of a big bank, but instead offers significantly better interest rates.
The alternative? The online savings account.
Here are the three best reasons to make the switch to, or open an online savings account today:
1. Higher Interest Rates
Without a doubt, higher interest rates are the best reason to consider a switch to an online savings account. A quick Google search lends plenty of articles comparing the highest rates. The best currently offer rates between 1.4% and 1.5%.
Personally, I use Marcus by Goldman Sachs. They currently offer 1.5% interest, with no fees and a $1 minimum balance. At 1.5% interest, each year I would earn $150 for every $10,000 in the account. That is 14,900% more than the big banks. Wondering why the rates are so different? Look no further than the business structure.
Online banks do not have the expense of maintaining branches as traditional banks do. By keeping an online-only presence, these types of banks are able to reduce their costs significantly. This, in turn, allows them to offer more competitive rates for your money.
On top of this cost savings, these online banks have been continuously increasing rates to beat their competition. In December 2017, I received this email and was happy enough about it to let the Twittersphere know. My interest rate was increased to 1.40%! A couple of months later, the rate on my account was increased again, to 1.50%.
How great is that! Please keep up the interest rate war, online banks!
2. No Lines, No Pressure, No Hassle
One of my least favourite things about banks is their hours: Monday-Friday from 9 AM to 5 PM.
C’mon guys! What if I am not able to leave work in the middle of the day? Hours like that are straight inconvenient for most people. And if your bank happens to be open until 5:30 PM or 6:00 PM, the lineup of people can be ridiculous. Nobody has time to stand in line at the bank anymore! Enter the online banking experience.
I’ve been using an online savings account for about three years now. The experience has been smooth and stress-free. For example, online banks have extended phone hours, with some even offering 24/7 service.
Beyond their extended service hours over the phone, online banks focus on one thing: their online experience.
It’s almost as if these banks are tech companies that happen to offer banking services. The best offer flawless and intuitive online experiences, making it unlikely you’ll ever need to pick up the phone.
3. Peace of Mind
Considering that an online savings account is, well, online, it is natural to question the safety of your money.
Most online banks are FDIC-insured and therefore offer the same protection as traditional banks. That means your money is secure and backed by the federal government the same way as your bank down the street. Always verify this before opening an account, but the most popular online banks carry this distinction.
Additionally, you can sleep easy knowing that banks like Ally offer an online and mobile security guarantee. Just like the big banks, online banks understand the risks of doing business online and are working to protect your property.
Still not convinced?
If you are still sceptical of switching to an online savings account, I urge you to do some more reading on the topic.
I am a firm believer in the product but have purposefully left the links to online banks out of this post. I am not trying to sell you anything – I am trying to get you to start winning with your savings account. The path to wealth is a long one, and saving is the most critical part of that journey.
Online bank accounts are the perfect place to put an emergency fund or begin to save. Their superior interest rates, ease of use and security features take them to a level that most traditional banks cannot compete with.
Open an online savings account today – your bank account will thank you when it sees those interest checks.