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The following post is by MPFJ staff writer, Shondell of Call Me What You Want Even Cheap. At her site, she blogs about her recent car loan, mortgage pay off, and a whole bunch more. Check out her blog right here!
Online banks work on the same premises as traditional banks. Both types of banks accept deposits from customers, lend money to borrowers at high interest rates, and return a small portion of their profit to the depositors as Annual Percentage Rates (APR) or an Annual Percentage Yield (APY).
However, there is a big difference in the way they operate. Online banks exist only on the Internet and, as such, come with their own flexibilities and difficulties.
Because online banks have only a fraction of the overhead that traditional banks have, they are able to give a higher rate of interest and also waive most of the fees. Whereas traditional banks give an APY in the range of 0.25% (at the highest), online banks usually give a bit of a higher rate. This is enough to make online savings accounts highly attractive for most people. You can check your account at any hour of the day and night from the comfort of your home. You can also pay bills and make online transfers instantly.
If you have never opened an online savings account, then it is natural for you to be suspicious about the security of your money. However, there is no reason to be worried as online banks are totally legal entities and have several layers of security features to make your money extremely safe and secure. As long as the bank does not fail (their failure rate is no higher than that of traditional banks), your money will be in safe hands and working to make more money for you. The majority of these online banks are also FDIC insured, just the same as traditional brick and mortar banks (more on this discussed below).
The popularity of online savings account has given rise to many online banks, including Ally Bank, American Express, EmigrantDirect, EverBank and HSBC Online, which are some of the most well-known. Some of them are divisions of traditional brick-and-mortar banks and others work in collaboration with the latter. For example, HSBC Online Savings is a service of HSBC. This is necessary as deposits and withdrawals (of cash) are still done through traditional accounts linked to the online accounts.
When choosing an online bank, you should compare the APY (which varies from day to day and bank to bank), customer service (whether you will be able to talk to a person in times of need), fees and service charges (whether there are any; in theory, there should be very few, if at all), and FDIC insurance (your online savings accounts must be insured by the FDIC). Do not trust any online bank that is not insured by the FDIC.
Here are brief descriptions of some of the top online banks:
Ally Bank is a division of the General Motors Acceptance Corporation (GMAC), whose business interests include insurance, commercial finance and direct banking. This popular online bank offers a variable APY of around 0.95% on online savings accounts and doesn’t charge any maintenance fees and service charges apart from overdraft fees. You can open an account with a zero balance and your deposit is insured by the FDIC by up to $250,000.
American Express is the largest issuer of credit cards in the world and its online savings account has one of the best interest rates. The American Express High-Yield Savings account offers an APY of around 0.80% on any amount of deposit (no minimum deposit required). There are no maintenance fees and service charges, and your deposit is insured by the FDIC for up to $250,000.
EmigrantDirect is a division of Emigrant Bank, whose business interests include direct banking, commercial finance and real estate. The bank offers a variable APY of around 0.50% on any amount of deposit and doesn’t charge any fees, service charges and penalties. There is no minimum balance to open an account and your deposit will be insured by the FDIC by up to $250,000.
EverBank Online is a division of EverBank, whose business interests include direct banking, retail banking, Forex and commodities. The bank offers one of the best interest rates in the banking industry along with no monthly fees. Its High Yield Online savings account returns a variable APY of 1.25% on your deposit, which is insured by the FDIC for up to $250,000.
However, it’s important to note that unlike some of the other accounts mentioned here, there is a $1,500 minimum account balance to open an account.
HSBC Online Savings:
HSBC Online Savings is a service of HSBC, which is one of the largest banks in the world with presence in over 80 countries around the world. The business interests of the bank include commercial finance, retail banking and global banking. The bank offers a variable APY of around 0.40% on online savings account and your deposit is FDIC-insured for up to $250,000. There is no minimum balance and no maintenance fees and service charges except for overdraft.
How about you all? Who do you bank with for your online savings accounts?
Share your experiences by commenting below!
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