There are plenty of advertisements on television and online for internet savings accounts today. It seems like it’s the technological thing to do, if you’re baking online already, why not set up a savings account online? These online banks also advertise higher interest rates than your local bank, so wouldn’t it be worth putting some money there? Actually, there are some benefits to using online savings accounts, but they aren’t as great as you might think. Here are some of those benefits:
1. You get a higher interest rate – sort of. You’ll see lots of “teaser” rates advertised for these accounts, but note that the initial deposits are high, you probably have to maintain high balances on an ongoing basis, and the supposedly high interest rate is really on a half percent higher than your local bank. don’t be fooled by hearing “high interest rate” – current government policy means almost no banks are going to pay more than a percent or two interest.
2. You can keep your hands off the account. Not being able to get to the bank to withdraw money means you may be more likely to save it. Yet many of these accounts have debit cards, so these accounts won’t help you save that way. you can set up direct or regular deposits, but that’s true of nearly all savings accounts. And not being able to get at it in a hurry could be a downside. If you needed the cash in an emergency, you’d be limited to what you can withdraw daily on your debit card.
3. You can easily transfer into other accounts. Some banks have easy transfers into brokerage accounts, or make it simple to purchase CDs. That is also true though of most regular bank accounts. If you have a brokerage account you use, setting up an electronic transfer, or EFT, is fairly simple. But some people like to have everyone at one site online.
Using an internet savings account can be great if you’re looking for another place to stash money at a little higher interest. Be sure to weight the plus of high interest with the con of less than easy access. You may find it’s worth it to set up an online account.
