What do you look for in a savings account?
Determining the best place to park your money may require some time and comparative research. Not only because interest rates are at their low point, but because of the numerous choices we have available to us. Financial institutions have more products than ever and are eager to get your business. Not only are they competing with the building and advertising billboards across the street, but they are also trying to adapt and play in a new marketplace where online banks are thriving.
So what makes a great savings account? It’s pretty obvious what most people are after: it’s the yield of course. And online accounts are in a category of bank products that provide relatively higher returns because it costs a bank less to maintain them. The institution can therefore pass those savings off to their customers. So if you’re after the returns, then it’s worth investigating an online savings account.
Check out this list of great online savings options:
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In my case, what first attracted me to an online bank is the fact that the money I keep here is separate from that which I have in my traditional financial institution. I can transfer over a percentage of my monthly income to the online account and watch it accumulate. It is less tempting to dip into it needlessly when it doesn’t appear on my regular monthly statements. I like to use a good high yield savings account for a specific purpose: a trip, a big purchase like a new appliance, or to save enough to pay off our vehicle. I then separate my retirement and long term savings into other accounts.
A Good Savings Account Has These Features
Given these parameters, we should expect that an online savings account needs to fill a need with a few specifications:
- Accessibility: With seasonal employment and kids headed for college one day, I’d like to ensure that I have easy access to my savings within a short time frame. Our money in short term savings needs to be liquid; we don’t need to be waiting to sell funds.
- No Minimum Deposit: I like a savings account that allows me to put away whatever amount works for me that month. It might mean that I have less than $1,000 with which to open the account.
- Low or No Fees & Costs: Why pay monthly fees when there are many options out there that don’t charge this type of fee?
- Reputation: I can only entrust my savings to a well known, reliable bank with a solid reputation.
- Good Yield or Decent Returns: Obviously, I want the highest interest rate possible, but the other points and features need to be considered as well. In this low interest rate environment, the difference between 1.4% and 1.6% is not going to influence me, especially if my savings fund isn’t that large to begin with. One more thing to watch out for: any possible “bait and switch situation”. What I mean is this: some banks may lure you into a savings or bank account based on one rate but then turn around and lower that rate not long after. Some accounts have very dynamic rates, which shift and change direction (usually lower), like the wind.
- User Friendly Website: Because all of our transactions are going to be online (in the case of internet banking), I would much appreciate a site that is easy to use and understand.
I am usually turned off by any account that has confusing details, such as changing interest rates depending on the amount in your account. I am referring to terms such as this: “If you deposit $500 for 36 days, the interest rate will be 3.5%, after the 37th day, if you don’t deposit another $500, the interest rate will change to 0.04%.” I much prefer terms that are clear and static. For instance, the case where one interest rate is given to balances over a particular amount (ie. $10,000) and another rate for account balances that are under that stated amount is actually more reasonable, so I can buy into this.
My Personal Picks
Considering the popular online savings accounts that are listed, if I were to pick one for my current needs as discussed here, I would definitely be opening an Ally Bank Account or an FNBO Savings Account. They have no monthly fees and no minimum balance requirement with an interest rate that is competitive. I can live with the slightly lower percentage rate if it’s afforded by a highly reputable brand.
Now, if I had a heftier sum to channel into savings (say $50,000) and wanted to park it short term, I would pick the EverBank Yield Money Market account and reap the benefits of their higher interest rate on $50,000 for the first three months. This is one of those accounts with lots of details and varying terms based on the length of time of the investment and the amount of the investment, so be educated on those matters before signing up.
Created: June 4, 2009; Updated: May 25, 2011
Copyright © 2011 The Digerati Life. All Rights Reserved.
{ 12 comments… read them below or add one }
So far I’ve been very impressed with Ally bank. They have a chance to do well in this market, but as of yet they don’t offer that “one thing” that would make me switch from ING Direct. You’ve got to really improve a product to get people to switch, and it just isn’t there.
Are there any sites out there offering $$ to sign up with them? $25 bucks on a $250 account blows away any miniscule interest rate you can get.
I think people are mostly scared to change financial institutions – especially now that they can “insure” up to $250,000 per person at their local bank.
It seems that Ally bank is offering quite a good deal. While security is very important, ease of access and low charges is something that people took for as well.
From my experience, I’ll take any other savings account other than what’s at Ally Bank’s. They lure you in as a customer by offering high interest rates, but after that, they change the rates on a daily basis. Seems quite fishy to me!
John Rowe mentions the interest rates change daily and calls it fishy. If the changes are arbitrary, and especially if they diverge from what is offered to new customers I’d agree. But if the rates are pegged to some index that could be a good thing. Is there any information on how the rates are determined?
@Das Guy,
Shifting interest rates on your account may be both good and bad. If rates are rising, heck we’d all want to be on board that train right away! Sure, rates are set by the government. There’s the Prime Rate that varies with the Feds Fund Rate. See here for more details on how the rates are pegged.
All I know is that Ally Bank’s rates shift the most, compared to all other savings accounts I’ve been covering/following.
If a checking account can pay me 1.05%, I would prefer to open a checking account instead of a savings account. A checking account has several benefits, which we do not get from a savings account. I explain more in my blog post here. Recently, I did get a flier from Bankatlantic about a high interest checking account. This is one option every one should look at these days.
I’ve been very happy with my experience at HSBC. Though their rates are no longer the best, I’ve never had a problem with my account.
Two things are currently consisted about banks:
1. They’re heavily regulated.
2. They pay very, very little yield.
If the purpose of a savings account save, and the banks are paying very little interest, then it’s best to find the least expensive (preferably free if possible) option. Thus, park you money in a safe bank account while looking for a better opportunity to invest.
Thanks Adam. It’s easy enough to use a savings account for short term savings goals, for emergencies and for a parking spot for money to be used for investments at a future date. You’re right that when rates are so low, one should really be focusing on the costs since these fees are now the big differentiator across banks and FIs.
We get 4.25% on a rewards checking account (on balances up to 25K). Requires one direct deposit per month (minimum $100 or $200, I think) and 12 debit-as-credit transactions that average $5 each. We make sure we hit the 12 transactions threshold (otherwise the rate drops below 1%), but essentially treat it as a savings account.