Broke-Ass Student

Learn the Advantages and Disadvantages of Online Bank Savings Accounts

Here’s a look at some nifty Online Savings Accounts and their Current Rates as of December 10, 2006

iGObanking    5.30% APY ($1 to open, no minimum, no fees, FDIC insured, compounded daily)

E*Trade    5.05% APY ($1 to open, no minimum, no fees, FDIC insured, compounded daily)

EmigrantDirect    5.05% APY ($1 to open, no minimum, no fees, FDIC insured, compounded daily)

HSBC Direct    5.05% APY ($1 to open, no minimum, no fees, FDIC insured, compounded monthly)

ING Direct    4.50 % APY ($1 to open, no minimum, no fees, FDIC insured, compounded monthly)

Online Bank Savings Account

Does the thought of online banking make you a wee bit squeamish? So why is everyone raving about online savings accounts?

Here are some of the Advantages of Online Savings Accounts you’ll want to consider and be aware of while considering whether an online account is the right decision for you.

• Ridiculously high APY compared to traditional physical banks. Traditional banks have 2% or lower APY, as compared to online banks with 4.5% and higher. Because they exist solely in cyber space, they can forego the expensive overhead of buildings and tellers. Your Annual Percentage Yield (APY) is the interest earned in one year, taking into account the effect of compounding interest.

• The convenience to bank anytime you want, 24 hours a day, even in your jammies. Just click your mouse and you’re ready to roll.

• The ability to bank anywhere in the world, as long as you have access to the internet.

• FDIC Insured. The online banks listed above are all insured by the Federal Deposit Insurance Corporation. This means your bank deposits are insured by the federal corporation up to $100,000 per Social Security number. This is important because not all banks or account types are insured. When you start investing later in life, you’ll be taking much more risk with your assets. But for now, this is a very safe place to put money you absolutely don’t want to lose.

Some Disadvantages of Online Savings Accounts to help weigh your decision further:

• Not as immediate as traditional savings account. I personally see that as a huge incentive not to be so eager to touch money but hey, some peeps may view that as a disadvantage. Expect an average of three to five business days between transactions.

• Switching banks may be more cumbersome. Research carefully the Terms of Service for each account, and be on the lookout for penalties which may accrue should you decide to close the account out before a certain time frame has expired.

• Lack of ATMs. You’ll need to either mail your checks or transfer your funds from another account into your online account.

• Lack of tellers. You’re more at the mercy of an 800 number when you lack the convenience of talking with someone in person. If a problem arises, it’s a gamble. You could either receive friendly and knowledgeable help, or really crappy customer service.

• Technical difficulties. Since there’s no physical branch to visit, always keep an alternative stash of money handy somewhere in case the website temporarily goes down.

With all that said, I still feel an online savings account is the best option for my small emergency savings. I need the money fairly liquid because my goal is to first and foremost eliminate my car loan debt. But since I’ve established a small safety cushion to fall back on in case of an emergency, an online savings account seems like the perfect place to get the most bling for my buck right now.

With all this money zipping through cyberspace, the options can be confusing.  iGObanking is currently on top with the highest rate, but that will fluctuate over the coming weeks. I’m leaning strongly on EmigrantDirect. If anyone has experience with iGObanking, let’s here it.

Looks like it’s time to get off my tushie and get started!

~†~ Baby Steps are Key ~†~ Online savings accounts can help stretch your dollars further

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