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Should you have an online savings account?

Posted Feb 04 2009, 03:59 PM by Karen Datko
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"FFB" at Free From Broke was preaching to the choir when he wrote "9 reasons why you need an online high-yield savings account," although we have to admit our account is only several months old.

Whenever we look at how much interest we've earned, we could kick ourselves. Why didn't we do this several years ago?

In fact, FFB's No. 1 reason for going online with your savings is that "brick-and-mortar interest sucks."

The second reason is that interest on online savings accounts is so much better. His ING Direct account was paying 2.4% APY at the end of last month -- not nearly as high as it used to be but still much better than many traditional savings accounts. At some online banks, the rate is even higher. (How do you pick an online bank? Read below.)

"No, you won't be Bill Gates rich with that rate, but it is much better than what the average brick-and-mortar bank offers," he wrote. He observed that his online account did much better than his 401(k) in 2008.

Among other positives:

  • Subaccounts. Some online banks allow customers to set up subaccounts that they can designate for specific purposes, like saving for a car or vacation.
  • Easy access to money but not too easy. It takes several days to withdraw money from an online savings account. FFB also says he can't access his savings account from an ATM. He says, "The money is still pretty easy to get should I need it but not so easy that I could take the savings for an impulse buy."
  • Good customer service. At ING, he says, people who answer the phone are friendly. Our online bank's Web site is very easy to use and, amazingly, it's even humorous. We won't say which one it is. That's TMI in a world with too many clever hackers.

Is online banking safe? That is an issue to consider. Read this story at MSN Money about the risks and precautions you can take.

Related reading:

How to pick the best online savings account

Where to stash your everyday cash

Learning to love the emergency fund

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Comments

 

I have an ING account, though it is paining me to see my interest rate go from 3.44% (when I opened it a year ago) to 2.4%, it is still way more than my traditional brick & mortar account.  

dym (Posted 02.04.09 5:16 PM ) Report Abuse

I've recently opened an online savings account, and I have been pretty nervous about security (maybe a little more after reading that MSN Money article). However, I do agree with the positive points that are raised and am still relatively confident that they are good places to keep your money. I particularly agree with the point that although they're convenient, I'm less likely to withdraw money from it. Anything that can help save money in several ways, directly and indirectly, sounds good to me!

http://blog.justthrive.com

Aya @ Thrive (Posted 02.04.09 5:44 PM ) Report Abuse

I couldn't agree more with what you're saying here. Too often we get complacent with our current bank that we're not looking for other opportunities. Now, again, like you said- what kind of interest rates should you expect for this type of an account? Nothing great. If you have money that you really want to save, do it the right way.

1. Long term money (5 years or more) - put it in a mutual fund that follows the S&P

2. Mid term money - CDs and money markets are great!

3. Short term - an online checking account. But really, you shouldn't ever have more than a few thousand there anyway, so no big deal.

Great post.

http://www.financialnut.com

Trevor (Posted 02.04.09 5:56 PM ) Report Abuse

I have an on-line savings account and a 6-month CD through HSBC (all on-line)..great interest rates plus lots of options for contributing money to the account..I have mailed in checks (grea for those dinky little rebate checks you get in the mail for buying something), and I also have Direct Deposit from my paycheck... it don't get any easier.  It was also great getting the end of year statement showing how much MONEY was in my little red pig :)

jackie (Posted 02.04.09 5:57 PM ) Report Abuse

First - Thanks so much for mentioning my post!  Second - I've had an ING account since about 03-04, way before they were popular and I've never had a problem with any of the accounts.  I wish I could say the same for brick and mortar accounts I've had.  Opening the account was truly one of the earliest steps I took on my road to eliminating my debt and building up may savings.  Among things it's taught me was that little amounts saved automatically build up into big savings over time!

FFB (Posted 02.04.09 7:07 PM ) Report Abuse

I came across the article at FFB and thought it was right on. I have been with venturebankdirect.com for some time now. Love the high yield on both my online checking and savings accounts. The manner in which I bank, I have no use for a brick and mortar bank anymore.

Christine Washington (Posted 02.24.09 6:03 PM ) Report Abuse

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