Should I Open an Online Savings or Money Market Account?

Should I Open an Online Savings or Money Market Account?

Online banks offer some of the highest savings and money market rates in the banking world but many individuals are still nervous or skeptical about sending their money over the Internet.  Yet today, opening an online savings account or money market account can not only get you a significantly higher rate, but it can come with a lot of convenience and control.

Higher Rates and More

The most often cited reason for opening an online savings account is that online banks can offer savings rates that are over 1% higher than those offline.  Without the need to absorb the costs of branches and branch employees to support, they can operate more leanly, passing their savings on to their depositors.  Even among online banks, there is a range of rates that reflects competing demands for deposit capital.  Competition has become so keen that many major online banks offer their highest rates with minimal or no deposit requirements.  

There are other very compelling reasons to move some of your money to an online-only bank.   Principal among these are 24x7 access to your capital through a website or a mobile app and expanded customer service phone hours.  In addition, some banks offer check writing and a debit card as part of their online account.  Most however still find it most convenient to tie their online savings account or accounts to checking accounts at banks with large branch networks, holding only the minimum required at those banks and transferring capital back in as needed to cover expenses.   

You can see all online savings account rates, balance requirements, and features on the here.    In the reviews section of the table, users comment on their experience with a particular online bank, allowing you to ask questions and read about others experiences with account opening, customer service, transfers, and more. 

Is Your Money Safe?

All of the online banks listed on BestCashCow are FDIC insured.  While being FDIC insured is not a guarantee that a bank is necessarily financial sound, it indicates that the Federal Reserve guarantees your money up to $250,000 in each ownership category.  

In addition, many of the highest paying online banks have been around for some time or are part of larger, better known parent organizations.  Large, well known banks like Goldman Sachs Bank, Barclays Bank Delaware (one of the largest banks in the world), Emigrant Bank, Capital One, and TIAA CREF have rolled out online offerings with higher rates than their offline divisions. 

Is it Convenient?

In general, with an online savings or money market account, you can access your money online all the time, and deposit and withdraw your money using electronic transfers.  Some banks such as Ally now offer remote deposit though the mobile app.  By connecting your online savings account to another account that you have at your main bank - usually a checking account - you can easily transfer money back and forth.  An electronic transfer can take about 2-3 days to be complete, but at some banks, such as Goldman Sachs Bank, they are effected instantaneously.  Banks often have a 5 to 10 day hold period during which money recently transferred electronically may not be withdrawn.   

Customer Service

Almost all the online banks have phone numbers you can call if you have a problem.  You can also send them contact them directly through their interface or by email.

Some Pitfalls

Some online banks have very high introductory rates for savings accounts.  While the rate is guaranteed for a very period of time, it ordinarily is reduced to a lower rate shortly thereafter. Opening an online savings account at one of these banks can be viewed as being equivalent to opening a short term CD while having the money liquid.  BestCashCow however recommends depositors avoid banks that engage in bait-and-switch tactics, and favor those online banks that have a history of remaining competitive and extending their best rates to their longest standing customers, as well as to their newest customers(Ally, Synchrony, Goldman Sachs).

Bottom Line

There are plenty of reasons to continue to do business with banks and credit unions with branch networks that are close to you.   In fact, some of these banks offer savings and CD rates better than the most competitive rates online, so you should always check the rates in your area.

Often, however, the easiest way to gain an extra percentage point or more is to open an online savings account.  They offer high rates, safety, and convenience to those willing to make the jump to cyberspace.  When you consider the value of compounding even an extra one percent annually, your money can really add up over time (see the BestCashCow compound interest calculator here to calculate how much more you could make).

Do you plan to open an online savings account soon?  If not tell us why by commenting below this article.


Savings and CD Rates Are Perking Up as We Head into Summer

Savings and CD Rates Are Perking Up as We Head into Summer

Rate information contained on this page may have changed. Please find latest savings rates.

Last Wednesday, the Federal Reserve raised the Fed Funds rate from a quarter basis point to a target rate of 1 to 1.25%.

The move was widely expected, and gives hope to savers who have endured savings rates below zero for the almost a decade.

As I noted in my commentary the last time the Fed raised interest rates in March 2017, the impact on savings and CD rates banks are offering in not necessarily immediate.  However, 5 days after the Federal Reserve’s move, we are seeing the leading savings rates and CD rates increase.   BestCashCow’s tables show the best online savings rates are now as high as 1.30%.   They also show the best online 1-year CD rates are pushing 1.50%, with the best 2-year rates at 1.80% and the best 3-year CD rates over 1.90%. 

BestCashCow's local tables may show that savings rates and CD rates are offered in your home area that are higher than those that you find online.

Should you Lock into a Short Term CD now?

At this time last year, 1-year CD rates were as high as 1.35%.  As those CDs become due, their holders have outperformed cash, and are in fact outperforming cash right up to maturity.

Inflation is contained.  To boot, energy prices are falling due to Trump’s errant energy policy and disastrous climate policy.   While the Federal Reserve is only predicting one more rate hike this year and 3 next year, the fall in the 10 year US Treasury rates early this month would seem to indicate that the market is certainly not predicting any dramatic rise in interest rates in the immediate or intermediate future.  Therefore, there is little risk in a 1-year CD here, especially if you can find one that has only a 3-month early termination fee if you need the cash back sooner.

As it does briefly and semi-annually (each December and June), Ally Bank has begun offering its 11-month no penalty CD.  This time the rate is 1.50% for those depositing $25,000 or more.   Unless our tables show a better local savings rate or higher locally offered CD rates in your home market, this offer might be worth taking a look at. 


Stock Market Response to Trump Crisis

Stock Market Response to Trump Crisis

There is an excellent letter to the Editor in the New York Times by a citizen decrying the unending and ever more dangerous behavior of Donald Trump, and especially his reckless disregard for the country’s security and stability.   In it, the writer correctly calls out the Republicans in Congress who remain silent and in hiding, caring far more about their careers than the country’s welfare.

The Republicans in Congress are, indeed, out there for themselves.  They have made that abundantly clear – all of them.  The country has never, in recent memory, seen anything as pathetic and as blind to the huge crisis the country is facing.  The United States is at the brink, and that is neither an alarmist statement nor an exaggeration in any way.  It is fact.

But, there is another huge segment of the United States turning a blind eye on reality – on all that the President is doing to damage the country. And that is the stock market, more specifically the investment community.  Ever since President Trump assumed power, stock market indices have consistently rallied beyond even the most optimistic expectations.   Very much like the Republicans in Congress, investors are focusing exclusively on their self interests, ignoring the many flashing red lights of the country’s impending crisis.   Over and over again since the election, market behavior has become totally unplugged from reality.  Unlike past behavior where markets have consistently (like clockwork) adjusted to external realities, today’s American markets have lost their internal barometers and have turned amazingly blind eyes to the obvious synergy between major political crises and economic well-being.  So instead, one watches the country slide into an abyss from which it may not be able to pull out of, while at the same time markets, day after day, turn a blind eye to what is truly happening.  It seems that companies and markets are so relieved that Democrats are no longer in office that they haven’t stopped to realize that – truly – Republicans aren’t either – and that the country is at the brink and no one with a responsible national purview is in charge.  The result of all this is both obvious and catastrophic.

Image: Courtesy: Chicago Tribune