I’m a huge fan on online banking. In fact, I opened our first online savings account with ING Direct (now Capital One 360) over ten years ago, and I haven’t looked back since.
Sure, I still have a local brick and mortar bank for convenience, but I keep the vast majority of our savings online. Why? Because online banks offer significantly higher interest rates than do their local competitors.
I’ve opened more than my fair share of accounts over the years. In part it’s because I enjoy rate-chasing. And in part because I like reviewing them here on FiveCentNickel. With that in mind, I wanted to talk a bit about what I look for when evaluating an online bank. Here are seven main criteria I think about when deciding whether or not to open an online savings account. Depending on my current financial situation, I may weight them differently. (Interest rates current as of (02.28.2018)
One of the biggest factors that I consider when evaluating an online bank is its interest rate. While online savings rates can fluctuate dramatically over time (just in the last few months, rates have increased substantially), certain banks are consistently among the best (or worst) of breed.
For example, Capital One 360 is typically among the first to lower their rates and the last to raise them when the interest rate landscape changes. Thus, while they’re quite popular, they’re not at the bleeding edge rate-wise. In contrast, banks like Synchrony Bank, Ally Bank, and CIT Bank have always stood at the top of the interest rate game.
- CIT Bank – CIT Bank is currently offering 1.55% APY on all savings accounts balances. CIT Bank offers a wide variety of CDs, home loans, and small business loans, as well. The minimum deposit to open a savings account is $100.
Try Lending Club – If you’re looking for a higher yield than a regular bank can offer and you don’t mind taking on some additional risk, you might want to check out Lending Club. It’s not FDIC-insured, but annual returns have averaged 9.05% APY over the past 18 months. It’s free to open an account, and you can get started with as little as $25.
Whenever I evaluate a new bank, I always check out their safety ratings. To be completely honest, I’m not sure why I bother because, as long as they have FDIC insurance, I’m perfectly happy putting my money there. Case in point… I recently opened an account with DollarSavingsDirect. They have a 1-star Bankrate rating, but I’m still perfectly comfortable having money with them, as long as my balance stays below the FDIC insurance limits.
Perhaps more important than bank stability, especially for online banks, is security. The good news here is that most of the major online banks have fairly similar (and secure) login procedures, etc. Honestly, the biggest thing you can do to ensure the security of your money is to choose a strong password and then avoid falling for a phishing scheme.
- Barclays – Barclays bank currently sports 1.50% APY, which is 15x the national average. In addition savings and CD options, Barclays is also one of the premier credit card issuers in the United States. They offer cards great for travel, cash back, and balance transfers. Barclays currently offers an online savings account with no minimum opening deposit requirement.
Minimum Balance Requirements
Many online banks don’t have a minimum balance requirement, but some do. Fall below it, and your interest rate will likely tumble. You might also find yourself subject to monthly fees. If you’re not in a position to keep a large amount of cash in your account on an ongoing basis, be careful to…
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