May 14th, 2012
Could an Online Savings Account be Right for You?
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**Today’s guest post is contributed by Matthew Coan.**
What are the reasons that people use savings accounts these days? Is it to establish a rainy day fund, to save up to buy a house, or maybe saving money for your child’s college fund? The main purpose of a savings account is to put your money away in a risk-free account and have it earn interest and grow.
So which savings account is right for you? The main things to look at when reviewing savings accounts are the fees and interest rates. The goal is to spend the least amount of money in fees and still earn the most interest possible. Just because a bank is offering the highest interest rate doesn’t mean it is the best choice. They could have upfront and hidden fess that can eat away at the interest you are earning.
There are an endless number of savings accounts to choose from today. Every bank has them, and most of them are comparable, except for fees and the interest rate offered. But, choosing a savings account with the same bank that handles all your other banking needs might not be the best way to go. The same bank that you use for your daily checking account might not have the best savings account that is available. Remember that every bank is different and factors from convenience to the amount your money can grow should go into your decision.
Currently, the banks offering the best interest rates are online banks and some credit unions. Online banks don’t have the overhead costs of maintaining hundreds of buildings and paying thousands of employees, and therefore can pass the savings on to their customers in the form of interest. Credit unions are not-for-profit establishments, allowing them to offer better interest rates as well. Where for-profit banks have to distribute profits to owners and shareholders, credit unions are able to pass them to their customers.
Some of the largest banks in the country are physical banks. They have brick-and-mortar branches all over where members can handle their banking needs. But they have to pay to maintain these banks as well as staff them, which limits the amount of interest they can offer their customers. For example, Bank of America has almost 6,000 branches in the U.S., and access to over 18,000 ATMs. But, the interest rate they currently offer on their simplest savings account is 0.05% with a minimum account balance of $300. The average interest rate for the simplest savings accounts offered by Citibank, Wells Fargo, Bank of America and Regions Bank currently stands at 0.03%
Credit unions are mostly local or state establishments. In 2010 there were more than 7,000 credit unions in the U.S., according to CNN Money. In 2011 the average interest rate for savings accounts at credit unions across the country was 0.28%, with a wide range of minimum account balance requirements. You can go to http://www.creditunionsonline.com to find a credit union near you, along with the current rates they offer.
Online banks are among the best options to choose for savings accounts (and checking accounts too) and getting the best interest rates possible. You give up the convenience of having a branch down the street to conduct your banking needs. But, with technology improving every day, and 24/7 phone and Internet support, you will always have access to your money as well as find any answers you need over a safe and secure connection.
There are many options to choose from, and each account comes with a wide variety of options and minimum account requirements. Some of the top online banks are ING Direct, Ally Bank, Everbank and FNBO Direct, and the current average savings account interest rate among them is 0.76%.
Bottom Line: So, whether you are in the market to open your first savings account, or are looking to make a change and earn more interest, you have a lot of options to choose from. A savings account is the key to your financial future, no matter what you are saving for. With online banks being able to offer over 25x the interest rate of the national physical branch banks, and about three times the average rate of credit unions, they are an option worth taking a look at.
Matthew Coan is the founder and writer for Casavvy.com. Casavvy.com (a combination of the words cash and savvy) was launched in February of 2012 to bring users the best information and reviews for credit cards, checking accounts, and savings accounts.