Written by: John Drachman
Along with Netflix, zooming friends and ordering groceries online, many of those sheltering-in-place are adding higher income to their list of online pursuits.
With federal stimulus monies finding their way to the nation’s savers, the opportunity to stay safe, grow a savings account and remain liquid has its attractions. Minus the brick and mortar, online accounts offer income seekers a low-cost way to pursue yields higher than those available from the corner bank.
Because online banks don’t have the expense of maintaining branches, they can offer high-interest savings paying many times higher than traditional accounts. While opening up a traditional account today may provide an approximate 0.05% annual percentage (APY), online savings accounts are generating between 1.70% and 1.90% APY. On an account balance of $10,000, that can mean a difference of several hundred dollars more a year in interest income.
Is Saving Online Right for You?
If you’re looking for a place to park your savings, consider the pros and cons of choosing an online bank first. The pros include:
- Access to Higher Yield Interest Rates. Without the added expenses incurred by traditional banks, the online variety can pass their cost efficiencies on to customers in the form of higher rates.
- Minimal fees. Compared to a traditional account, which might charge a $5 or $10 monthly maintenance fee, online banks often charge no monthly fee at all while offering no minimum balance requirement and low minimums to sweeten the deal.
- Highly responsive, 24/7 website interface. Opening an account is quick and easy. Online banks are always open and feature mobile apps that offer customers a very personalized user experience.
Still, online saving may not be right for everyone:
- Websites crash. The flood of online transactions from a safe distance are straining the capacity of America’s 5G providers – which could prohibit you from making an important transaction in a timely manner if the “system goes down.”
- ATM fees. Are you a big user of ATMs? Using another bank’s ATM can trigger high fees, adding to expenses.
- Waiting to deposit. Instead of making an instant in-person deposit, your options for online transactions may be limited to ACH transfers, direct deposit, wire transfers or mobile check deposit – which may take time to process through your account.
Bottom Line: Online Savings Is a Good First Step
While the benefits of high-yield savings at online banks tend to outweigh the drawbacks, an account is only one step toward in a comprehensive financial strategy. Stash your money away at above-average rates as you consider the “bigger picture.” Working with a financial advisor can add some perspective too. Those who did reported a higher level of confidence in their longer-term financial outlook.