Online Savings Accounts: Compare online savings accounts to find the highest rate for you.
Online Savings Accounts
Online savings accounts provide a way to receive significantly
higher interest rates than traditional savings accounts while
providing the same security and liquidity. Because banks can offer
online accounts without the need for retail establishments and
tellers, they can offer higher rates than traditional savings
accounts.
Online vs. In Person
Online savings accounts work a little differently than
traditional savings accounts. An online savings account usually
requires a checking account that the savings account can attach
itself to. Whereas a traditional account can be accessed by
depositing cash or checks, an online savings account relies on
transfers in and out of an existing checking account. Because most
people will have a checking account with a local or different bank
than their online savings account's bank, transfers into and out of
the account may take several days. Users of direct deposit have
often found out that their paycheck is inaccessible for several days
because they are accustomed to instant transfers between their
traditional accounts.
Like most traditional banks, online savings accounts from a
reputable bank are FDIC insured for up to $100,000. Just like a
traditional bank, the money in your online account is cash - not
stocks or bonds that could potentially lose value. But unlike a
local bank, it is unlikely an online bank will have a local branch
you can go to for face to face interaction with customer service. If
you are willing to exchange physical interaction with your bank and
plan your transfers accordingly for much higher savings rates, an
online savings account is just the thing for you!
Savings vs. Money Markets
Money Market accounts have historically offered higher rates than
normal savings accounts. With the introduction of online savings
accounts, the difference in rates has become very slim and the line
between the two types of accounts may have blurred a little. In
fact, several online savings accounts actually are money market
accounts. With a money market, you are legally limited to 6
transfers from the account per month. Many money market accounts
also offer checks. While both traditional and online savings
accounts are based on the cash you put in, money markets are not
technically based on cash. Instead, they use high quality
investments such as CDs, municipal notes, or treasury bills.
Depending on how important check writing and multiple transfers per
month are to you, a money market may provide advantages over other
savings accounts.
As a Part of Your Portfolio
The relatively lower yields and high liquidity of savings accounts
make them ideal for short term savings or as a place to store an
emergency fund. For people who are looking for long term investing
options, savings accounts do not reach the average level of
performance of other investment vehicles such as bonds, stocks, or
mutual funds.
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