When I addressed the question on whether you should bother with a online high yield savings account I received some great comments. One of my readers posed a great question through email. The reader inquired as to why I personally have a online savings account. As I started writing the email I realized that this was the ideal idea for a post.
Why do I have a online high interest savings account?
Higher interest rate
Well higher than a regular checking out. I’m not going to be an ING Direct or Smarty Pig shill, I will tell you how I really feel. The current interest rates are nothing special. The online savings accounts were very enticing to join when they were at near 4% but those rates have since gone down. With that being said, it’s important to note that there is no risk and you will earn more money with an online savings account than you could with your standard brick-and-mortar account.
Online savings accounts are cheap and convenient
I transfer the money from my checking account to my online savings account from my laptop while laying in bed. It’s so simple. There are no entry fees. No monthly fees. No fees period. Compared to the traditional method of walking to your local bank with your check/money in hand and dealing with bank tellers, online banking is very convenient. You can potentially go for years without ever stepping foot into a bank. I don’t know about you guys but I’m not too fond about going to the bank very often (unless they are calling me in to tell me I have too much money).
Barrier for spending money
Knowing I have to wait 3-5 days to transfer the money from my savings account into my standard checking account forces me to plan ahead. All twenty-somethings know how important this can be. Especially in a day and age where there is a plethora of options for going out and spending money, anywhere from something as simple as a night at a bar to going out for a live sporting event. Last minute offers can catch us off guard when our judgment isn’t the greatest. The end result is usually a random splurge that we clearly did not anticipate. Having my money locked away is a much needed barrier that prevents SOME of the spur of the moment purchases I have been known to make.
Ability to open and label separate accounts
As ridiculous and childish as this may sound- I love the fact that I can create separate accounts with separate labels with my online savings account at ING Direct. Online banking is simply the way of the future and I feel banks must innovate. Such a small product feature entices me to have an online savings account in tact.
I have a savings account which I labeled, “Vacation” and every week $20 is transferred over, slowly accumulating until I have enough money for a trip. I also have another savings account where I store my online income (pretty soon there will enough money in this account for a Ferrari- well a Ferrari poster). Then of course I got my regular savings account. Being able to rename my accounts is important to ME because it allows me to set goals. The question is, what is important to you from a savings account?
Why do you engage in online banking and online savings accounts? If you don’t, then why not? Is online banking right for you or not?
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I don’t like savings account because they don’t offer much return. I rather have a line of credit as an emergency fund and use my money to invest and create more value than the 1%, 1.5% most ING’s of this world are offering right now.
I see many people putting money on the side in those accounts but paying interest on debts (obviously at a much higher interest rate). It’s a psychological aspect of finance: they tend to prefer to see $1,000 in their savings account and don’t mind to have $500 pending debts on their credit card
You brought up some very good points.
I just want to add that you work in the financial industry. You are also well educated on investment vehicles. A savings account is a simple tool for 20 somethings that are fairly new to personal finance.
I definitely agree with you. If you have debt then you should focus on paying it off before you concern yourself with any sort of savings.
However, if you are a young professional new to the workforce or a college student with a part-time, you should open up a savings account before you do anything else.
Then again, it would be smarter to pay off your debts first and then think about your emergency fund
instead of putting $25 per month in a savings account, make that extra payment on a debt and start snowballing
when you will come down to create a savings account, you will build it pretty fast!
If you are going to look at what you can get as a return from the bank for a savings account, you might as well not save.
However, the point shouldnt be on how much percent I can get, because lets face it, none of us put enough in savings to get a significant return. Even if say you have 5000 @ 5% is 250, but those numbers are unheard of today.
The point should be to learn the habit of putting money away and more importantly automate it so you cant touch the money once you earn it. It goes straight into savings
You nailed it Thomas. We all want to earn greater returns on our money than savings accounts offer but what can you do? Instead of complaining about the rates, shut up and save your money. In the mean time conduct your own research. Look into different securities (stocks, mutual funds, CDs, GICs, bonds, etc.) and find one that is right for you.
I personally find an online savings account to be a perfect financial tool for a twenty-something. You can setup automation so that every time you get paid your money is directly sent to your online account. The interest rate may be poor but you won’t be at the end of the year when you notice how all of those automated payments have added up.