Many twenty-somethings reading this are pondering (or have pondered) this question- should I bother with a online high interest savings account? I am in no position to answer this question for you or to tell you where to store your hard earned money. However, I do feel an obligation to at least inform you of options that are available to you so that you are well informed s to where you save your money.
(I promise to try to make the topic of online savings accounts as interesting as I possibly can.)
What is this online high interest savings account all about?
Of all the financial products out there today, some are getting more attention and some deserve to be more popular. One of the financial instruments that is helping people save more money is an online high yield savings account. When it comes to putting money away for the future, people can either use a traditional savings account or any of the other less secure measures for growing money. An online savings account is a bank account that does not have a traditional brick-and-mortar setup, meaning that there are no physical banks on your street corner. Through the elimination of major overhead costs, online banks are able to offer higher interest rates and improved customer service.
What are the benefits of an online savings account?
Security
Though making the dollars grow is a big deal as well, ensuring that the money will be safe is something that every consumer can relate to. With the FDIC insurance, you will have up to $250,000 worth of protection in case something happens to your cash. This federal insurance is about as good as you are going to find in the financial world today.
Convenience
When I get paid from work the money goes into my checking account. From there I click a few buttons and transfer the money to my ING Direct online savings account. The whole point of a savings account is so that you do not frequently withdraw money. With that being said, it’s critical to note that if an emergency were to happen you will receive your funds from your savings account into your checking account within 3-5 business days.
More money with an online savings account
With your money safe in online high yield savings accounts, you have to be concerned with another issue, as well. You have to make sure that you are giving your money the best chance to grow, as well. As mentioned earlier in the article, the elimination of physical bank locations allows these online banks to save more money and pass the savings down to the customers.
Smarty Pig is currently offering 2.01% and ING Direct is offering 1.05%. Definitely not going to get rich quick but your money will grow faster than it would in a traditional checking account (where most people surprisingly keep their money).
The high yield aspect of these accounts is the obvious draw. In some instances, you can get an interest rate at 2% or more with online savings accounts, depending upon how much money you want to put into the account. That is a big time yield and it is certainly more than you are going to get from some of the brick-and-mortar savings accounts out there. Making your money grow more quickly has to be a huge concern, which is primarily why online high yield savings accounts have grown so much in popularity. This combination of security for your money and absolute potential for growth is something that many traditional banks just can’t offer. The financial world is moving to the internet and these online high yield savings accounts are the way of the future.
Now it’s time to answer the fundamental question of this post- Should I bother with a online high interest savings account?
If you are really comfortable with your current bank setup and really appreciate the customer service at your local then I would suggest that you do not switch to an online savings account.
If you are looking to grow your money, earn a higher interest rate, have your money locked away, and know that your money is securely growing then by all means consider signing up for a high yield online savings account. (I am currently using ING Direct)
Just to add to the first point. Even if you are satisfied with your current brick-and-mortar banking account there is nothing wrong with opening up a separate online savings account. This is what I’m doing at the moment and have not encountered any issues yet. The money goes straight into my checking account and then is transferred into my other separate accounts (online savings, retirement, vacation account).
For us twenty somethings it is very beneficial to have our money locked away. There have been so many nights where my judgment fades and I want to access my money. Thankfully a major chunk of my money is in an online savings account that I do not have immediate access to. It doesn’t matter if your financial decisions are based on emotions or pure math it makes sense to at least give it a try and open up an online savings account.
Where do you keep your money?
(Full disclosure: As you can tell I support ING Direct. I have had this savings account long before I even knew what a personal finance blog was. I just want you guys to be aware of this bias.)
{ 6 comments… read them below or add one }
Online accounts are great for some people. I stick to money market accounts with my bank cause I like having all my bank accounts in one place and the rates are basically the same right now.
Why do you think online savings account rate spreads over traditional bricks and mortar banks have compressed so much? They seem so pitiful now.
BTW, as a student, I’d love to hear your thoughts over on my site on whether a 32% hike in tuition creates a future hoard of fiscal conservatives!
Sorry guys this was only the second post of my investing section. This is by no means an investment blog nor do I plan on giving your the investment advice “of a life time.”
The lower interest rates has its pros and cons. Definitely a good time to lock in a low interest rate on your mortgage. Not so good of a time to watch your money grow in an online savings account.
Just to provide some info on my financial system- I have a certain amount in my online savings account at ING Direct. I also do have X amount invested in securities at the moment. Some in a registered retirement account and some in a simple investment account.
For you gentlemen an online savings account is a very simple financial tool and the math simply does not add up. For many twenty-somethings it is more about the mental aspect than the math. Sure you can argue the interest rate sucks but it’s the barrier of having your money locked away that is beneficial.
The one big (and admittedly, arbitrary) holdup I have with even looking for an online savings account is that having all my banking done through the same place is such a convenience and I just don’t look forward to having to visit a new site and remember another password anytime I want to check my accounts.
The inconvenience of having to wait several days for money to go from my B&M bank to ING Direct and vice versa is a good thing; it forces me to plan ahead of time for expenses. That’s probably the biggest draw for me, since rates aren’t 4% any longer.
@Edwin There is nothing wrong with that if you have no issues with your current financial setup. I’m not here to tell people what to do, I just share my thoughts and look for feedback.
@Chris I totally agree with that one. I’m forced to plan my nights out ahead of time or else I won’t have the fund available. Believe me that is very important when there is a party going on almost every night in college.