What if someone told you they would pay you roughly 170 times more for keeping your money in online savings accounts?
After suspiciously doing your research and verifying this is true, would you not run to open an account with them?
I know I would! However, according to the Pew Research Center, only 51% of US adults use any form of online banking.
So why aren't people taking advantage?
This could be for various reasons, including not knowing these options are available or being unsure about how online banking works.
So let me answer a few questions I'm sure a lot of you have:
How Do Online Savings Accounts Work?
Online banks work the same way as regular banks, except they pay higher interest rates. They can do this because they don't have the cost of maintaining local branches.
Are Online Savings Accounts Safe?
Online savings accounts are as safe or possibly even safer than traditional banking because human error is less risky.
Are Online Savings Accounts FDIC Insured?
Like traditional banks, most online savings accounts are FDIC-insured up to $250,000.
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That said, I’m a big believer in not leaving free money on the table and taking advantage of what these banks offer.
For example, I used credit card points to travel to Italy for FREE!
As for online savings accounts, the key benefit is that they allow you to access some of the best interest rates available.
Online savings accounts offer, on average, an interest rate of 1.7% or greater. The average regular savings account offers a laughable 0.01%.
This difference in interest rates becomes even more significant the more you have in savings.
Let's say you have $2000 in savings:
Switching to an online savings account would earn you an extra $32 a year. Not very impressive
Now let's say you have $10,000 in savings:
Switching to an online savings account would earn you an extra $160 annually!
As a result, this is what makes online savings accounts the perfect place to stash your emergency fund.
Now that you know how online savings accounts work and the benefits of owning one. Here are some of the best online savings accounts from my experience.
What Is The Best Online Savings Account?
1. Discover: Current Yield 2.00%
First, I’ve used Discover online banking for a few years so I might be biased toward this option.
However, I have continued using them because of their amazing customer service and competitive interest rates.
The dashboard after login is very basic, which works for me because it’s not confusing. There is no monthly fee as long as you keep an account balance of $500.
2. Ally: Current Yield 1.90%
To begin with, Ally has been very popular with millennials; you might have seen their commercials on TV. They do great listening to their clients and integrating new options.
They have no minimum amount to open an account and have no annual fee.
Their customer service is always available and even via Twitter which is pretty cool. As a result, if you like companies that are always innovating to bring you the very best service, Ally is a great option.
3. Synchrony: Current Yield 2.15%
The online savings account with one of the highest yields is Synchrony. They aren’t a bank that will come after you with fees; they do not charge you for going over the monthly withdrawal limit, and there are no annual maintenance fees either.
Another perk is that they provide you with a bank card that can be used for withdrawals from certain ATMs.
For that reason, I highly recommend them!
However, the only con I would mention is that they still do not have an app.
Lastly, there are some downsides to online banks:
- It takes a few business days to process transfers
- There is a limit of 6 withdrawals in any given month
- Fewer ATMs available
Hopefully, this has helped you decide on the best online savings account and whether it's a good option.