Online Savings Account Pros and Cons
An online savings account can make give you more bang for your buck on your money that is just sitting dormant. But what are the pros and cons of an online savings account?
Pros:
Higher Yield: You will receive a higher yield on your money. In other words, online savings accounts pay you more interest. HSBC currently pays 6x the national average. When Federal Interest rates start going back up, you can expect your rates to increase.
Easy Access: You can access your money anytime with an ATM card. Other investment products that offer similar returns on your money, such as a CD, require locking your money up for 6-12 months.
Painless Setup: It takes just 5 minutes to open and fund your account online. Just fill out a quick application form and transfer money from your current bank account – instantly giving you a higher return on your savings with a bank-to-bank transfer.
No Fees: The best online savings accounts have no fees, no minimum balances.
24 Hour Access: Since an online high-yield savings account is completely online, you have complete access to your account 24 hours a day, 7 days a week.
Safety: The big online savings accounts are FDIC insured. That means up to $100,000 of your money is completely protected.
Cons:
Simple Banking: High-yield online savings accounts are able to give you great rates because their overhead is so much lower. They have no branches to maintain, and no tellers to pay. If you need a personal touch, you will have to call an 800 number.
ATM Fees: While you can withdraw your money at anytime with an ATM card, you will likely be charged $2 or so for using another bank’s ATM machine. Chances are your online bank will not have their own network of ATMs that are easily accessible. Some online banks are reimbursing customers for this inconvenience though, so this may be a non-issue.
Deposits: If you have direct deposit set up, there are not problems, but depositing a check can be a bit tricky since there are no branches. You will have to deposit your check into your brick and mortar bank account and then transfer the funds electronically. Not a big deal since the electronic transfer only takes a few mouse clicks.
Millionaire Money Habit: While it is recommended to have 3 – 6 months of emergency fund savings that is easily accessible, it does not mean you can’t put that money to work for you. When you deposit money in a bank you are essentially giving them a loan until you need the money, so make sure you are getting the best return on your money by opening an online savings account.
Great post, Ryan. I love my online savings account with ING. Only downer for me has been the time it takes to transfer funds between the online bank and my brick and morter bank.
I use the online savings account for saving up property tax funds as well as emergency funds.
I just happen to have an "in-network" atm close by the house, so that’s not a big deal for me. I heard Schwab’s online bank will reimburse all atm fees no questions asked. That’s nice.
Yeah, that’s basically what I do too. It’s much better thank having my savings sitting in my checking account earning less than 1%.
It’s a great place for your emergency fund that basically sits around doing nothing, but you need it to be accessible. At least with ING it’s doing a better job of keeping up with inflation.