Best Online Banks
When it comes to emergency funds savings, I subscribe to the theory “out of sight, out of mind.” Saving money with one of the best online banks helps to protect me from myself, as a recovering spendthrift. Our emergency funds are safely stashed at online banks if I need them, but not too accessible in the event I declare not having a plasma screen the week before college football season kicks off an emergency.
Online savings banks were all the rage just a couple years ago. It wasn’t unusual to score a 4 or 5 percent interest rate on online savings accounts. Today, the “high-yield” from high-yield savings accounts has all but been obliterated. Still, there are a few good deals at the best online banks, if you no where to look.
If you are like me, and have only a modest amount to save, one of the following online banks might be your best bet. I’ve listed them in no particular order after the first one (ING DIRECT is still my personal favorite, despite their relatively low interest rate).
EverBank (2.25% intro, 1.51% APY for the first year). EverBank’s Yield Pledge Money Market Account offers the highest interest rate of the bunch. The 3-month introductory 2.25% APY is an even sweeter rate, but it only lasts those first few months. There are a couple limitations to consider. EverBank requires a minimum deposit of $1,500, and in any month where your balance drops below $5,000 you face an $8.95 fee. That shouldn’t be a problem with most fully-funded emergency funds, but it is worth noting.
ING DIRECT (1.30% APY).I’ve had an ING Orange Savings Account for over two years now, and have to say I am very pleased with the product. We currently have a number of accounts there for targeted savings goals. While higher interest rates can be found elsewhere, I value the ease-of-use from their online interface.
WT Direct (1.51% APY accounts + $10,000). WT Direct also offers a solid interest rate, but with more caveats than other banks. While they do not require a minimum deposit, or charge fees based on your balance, they do offer a lower tiered interest rate for accounts with less than $10,000 (1.66% APY vs. 0.15%APY). If you have over $10k in your emergency fund, WT Direct is a solid option.
Ally Bank (1.49% APY).The high-yield savings account at Ally Bank is a very attractive option, with no fees, no minimums, and no convoluted tiered rates based on your balance. Another nice feature is that they compound interest daily, rather than monthly or quarterly, as many other banks do. Ally Bank is also a leader in high-yield CDS, which provides yet another option for a portion of your emergency savings (check out the no-penalty CD to avoid paying fees to transfer money out in an emergency).
Again, the most important benefit of saving emergency fund money at an online bank is that is separated from your everyday accounts, limiting the opportunities to spend it away on non-emergencies. I still like the idea of keeping a local emergency fund of $1,000 or so tucked away at a local bank or credit union for smaller emergencies. This smaller, local emergency fund provides quick access without having to wait a couple days for online transfers.
*APY figures quoted are accurate as of 11/25/2009, but variable rates can change frequently
The trouble with 1-2% is that the dollar is losing 8-10%. If you don’t want to lose value in your hard earned money, you need to get out of dollars.
Open an online trading account and put your money is GLD. It’s still liquid because you can sell at any time, but at least your money will not be going to mud.
I don’t understand why so many media and online articles mention these low interest rate accounts when you could get around 5.00% through high interest yielding checking accounts. (the only catch usually is that you have to have at least one direct deposit or bill pay and 12 credit/debit transactions per month.
To find you nearest bank see link below. (distance isn’t an issue for me as i do everything via online or mail)
https://www.checkingfinder.com/
I am not familiar with Ally Bank, and am a bit uneasy with putting my money in a bank I’ve never heard of anywhere but here. Where have they been all this time? Any further info? There’s nothing on their website.
Ally Bank has been around for a while, they used to be GMAC bank.
Looks like ING direct dropped their rate today after you posted to 1.30%. Bummer.
@Lisa: They are relatively new in name and mission, but were previously known as “GMAC Bank.” GMAC Bank has been around a while. The savings product is FDIC insured up to $250k as are most deposit accounts now (it’s still important to confirm this).
@Bible Money Matters: I saw that this morning. I added that disclaimer to the end about rates changing frequently, but I didn’t think it would be THAT quick!
As you were talking about the local credit union, I thought about mine. Our state employees credit union is still at a 1.50% APY as far as I know. I don’t know what other states offer.
EverBank also has the foreign currency money market accounts if you are into that sort of thing, but the minimum to accrue interest is 10k.
HSBC Direct is a good option as well. I was with ING Direct for a while, but switched to HSBC after I ran into an issue with ING.
American express is offering an online savings account as well. The process of opening an account with them seems to be better than HSBC’s. http://personalsavings.americanexpress.com/
I use e-trade, keeping my money in their max rate savings lowers my trades to $9.99. I can also instantly transfer cash from my emegency fund into my stock account which I can access via checks and a debit cards. I wish they had sub accounts like ING, I don’t think anyone else does that yet.
E-trade is only paying .8% it seems like it was over 5% just awhile ago. I’ve been considering moving 1/2 my emergency fund into a AAA Bond fund or something pretty safe but paying something.
@Curt:
Gold may or may not be a reasonable investment–as always with investments, it depends on the price. But it’s a terrible way to hold your emergency fund, because it’s not cash.
For example, I just started a new lease on my apartment. I know exactly how many dollars I need to pay over the next 11 months to keep a roof over my head. I have no idea how many ounces of gold that’s going to come to.
If you look over your budget, I bet you’ll find that over half of it goes for expenses where the prices are stable for a year at a time–rent, insurance of all kinds, tuition, car payment, taxes, etc. Grocery and fuel prices may see big changes due to inflation, but they’re much less than half of most people’s budgets.
FYI, Citibank has a 5-yr CD promotion at 3.75%. It WAS 4% last month. May be worth dumping some of your unneeded money there.
Every year you put your money in a 1.5% savings account, and you don’t use it, is 2.25% in lost money earned to put it differently.
I’m with Jason – I use HSBC too. I use them because the rate is higher than ING, and they have a local branch. I still use ING for smaller savings accounts, like tax bills and such where the interest difference doesn’t amount to as much. I think ING is far superior in their ease of use and features though..
I used to use ING, then switched to Emigrant Direct, then to HSBC direct, but I’ve since switched again…
I don’t understand why so many media and online articles mention these low interest rate accounts when you could get around 5.00% through high interest yielding checking accounts. (the only catch usually is that you have to have at least one direct deposit or bill pay and 12 credit/debit transactions per month.
To find you nearest bank see link below. (distance isn’t an issue for me as i do everything via online or mail)
https://www.checkingfinder.com/
I like your idea of keeping $1000.00 in emergency cash close at hand. For several years, I’ve carried that amount in a locked tool box in the trunk of my car, so that it is readily available when I’m away from home. I’ve only had to use it a couple of times, but both incidents were real emergencies far from home.
I have heard a lot of great things about ING but with those rates they are the same as my money market account at my bank. Can’t switch right now, vacation/emergency fund is staying put for now.
@Craig: I’ve been disappointed with their rates as well. The day I posted this the rate dropped to 1.30% APY.
@FrugalDad Are you thinking about switching to a brick and mortar money market account?
[...] you dropped that $500 a month in an online savings account averaging a 3% yield, you’d have $6,100 after the first year. That’s $100 you’re [...]
Well done FrugalDad. I subscribe to your philosphy whole-heartedly, and that’s why I write about having 3 seperate banks in “Going Broke To Win BIG.”
Protecting yourself from yourself is exactly how I treat my finances. I don’t have an online bank though, which may be smart of me to pitch for referral income. I just have 3 banks I can go in and speak to someone about my money.
My savings bank yields 4.2%/yr compared to just 2.5%% for my “Go Broke Bank” based on 5-YR CD rates.
I really don’t get why people would put money at 1.75% interest rate?
Emergency fund? if you don’t have any debts, it could be a good idea. But if you have any kind of debts, why would you invest your money at 1.75% when you probably pay over 8% on your other debts?
Your best investment right now is to pay down your debts. Investing $1,000 for a year in a saving account will make you earn a big $17.50. If you take the same $1,000 and you pay down your 12% credit card, you will save (read earn) $120. That is almost 7 times your savings account return.
So here is my suggestion:
- open a line of credit account with no banking card access and rip off the checks (you won’t be able to use it unless you have an emergency). This is your emergency funds.
- take the money you would be saving for an emergency fund and put it against your debts (mortgage, credit card, personal loan, etc.).
You will save a lot more money in interest and you will still have an emergency fund available in case of big trouble.
Thoughts?
I totally agree with you Mike. That is why earlier this year after the bottom dropped out of interest rates I took about half my savings to pay off my house. I think it was a great decision because rates have only continued to drop since then, and I no longer have a mortgage so I have been able to save faster since then.
What advise can any of you give for someone just starting out? I have student loans, mortgage payment, married and 1 child… I am very interested in saving but I want to know what is my best option..?
[...] Banking [...]
[...] Banking [...]
“Emergency fund? if you don’t have any debts, it could be a good idea. But if you have any kind of debts, why would you invest your money at 1.75% when you probably pay over 8% on your other debts?”
If you don’t have some kind of emergency fund, what will you do when you have an emergency? Probably go farther into debt! Just my opinion, but if we had debts we’d like a little cushion while paying them off. Heck, even Dave Ramsey, the king of pay-your-debts-off-now, suggests having a baby emergency fund of 1,000 dollars before paying off debts.
[...] Banking [...]
[...] red truck!” That’s the exact expression and tone I use when dealing with irritating online banks and credit card companies that like to pull a “bait and switch” on [...]