Increase Your Interest Earnings with an Online Savings Account
Opening a savings account through an online bank eases the pain of low interest rates. They pay at a level that is considerably higher than that earned through traditional institutions like Bank of America or Chase. They can do this, they say, because they do not carry the overhead related to maintaining a branch network.
I use Discover Bank to hold some free cash. Their online savings account pays .95% as of this writing. That may not sound like much. But it an embarrassment of riches compared with the .01-.08% paid by Chase Business Select High Yield Savings Accounts.
Discover Bank is an FDIC member. Their record is easy to find on the FDIC web site. The FDIC deposit insurance limit is currently $250,000. This means that in the event of a bank failure depositors are covered up to that level.
Money is moved in and out of the account electronically. When it is opened new depositors set up connections to other financial institutions they do business with. Transfers can take several business days. So users of online savings need to plan for this eventuality.
Despite the benefits some caution is in order. I would not use an online bank account if the perception of reasonable safety was not there. But keeping cash other places as well, even though it does not earn nearly as much interest, is a good idea. The concept of online banks has only been in the mainstream for ten or fifteen years. Going all in on any one investment idea, even one as boring as an FDIC-insured bank account, does not make sense. People who find that approach too cautious should remember this: many AAA-rated mortgage-backed bonds turned out to be junk during the 2008-09 financial crisis.
© 2016 invessentials.com – Essentials of Investing Articles presented here are general opinions for your own consideration. They are not specific advice for any one investor.
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