Having an online savings account is a smart move in today’s economy. Are you confident you are getting the maximum return on your savings? Below I outline three reasons why having an online savings account makes smart money sense in our current recession.
Having an online savings account allows your money to work harder
Keeping your savings in your local bank means quick access, but for the majority of small savers, it also means that your money isn’t working as hard for you as it could be. For instance, my credit union currently offers a .50%APY on savings, yet ING’s interest rate for an online savings account is nearly triple that at 1.40% APY . It makes smart money sense to have long-term savings at the highest yielding bank. Is convenience worth cutting your potential interest by one-third? Transferring money back to your checking account generally only takes 2-3 days, which leads me to the second reason why having an online savings account makes good financial sense.
If your money is housed in an online savings account, you are less tempted to spend it foolishly
If it typically takes 2-3 days to transfer money from an online savings account back to a checking account, then you are less likely to spend your money on things you do not truly need. Having to wait a few days means that you have to think long and hard about why you are raiding your savings account. Out of sight, out of mind is the key phrase here. If you tuck money away in an online savings account with full knowledge that it isn’t immediately accessible then you remove the temptation to raid your savings account to pay for things you don’t really need. Tucking a few dollars a way each pay check will help you build a fine nest egg for the future, not to mention a plump resource for rainy day emergencies.
Online savings accounts are friendly to those who make small deposits
Each time you visit the teller line or drive-thru window, you cost the bank money. Someone has to man the desk and that someone isn’t cheap. Banks pass costs along to consumers by way of astronomical service fees and also enforcing account minimums. I recently made the rounds at 3 banks in my town only to find that none of them catered to small savers. Each bank required a set amount of money to open a savings account, with the lowest requiring $100 to open and limiting me to just 6 transactions per month. Falling below $100 at any time would mean a maintenance fee. One banker even suggested that I open up a non-interest bearing free checking account to use as a savings vehicle until I could meet their $250 requirement to open up a savings account!
Yet a good many banks online do not charge such fees, nor do they require a specific amount to open an account, which makes them friendly to those who don’t have a lot of money to save in today’s economy. Online banks such as ING Direct and HSBC Direct do not charge monthly maintenance fees. You can open an account with as little as $1.00 and both banks are FDIC insured.