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Online Savings Accounts

Even a few years ago, online savings accounts would not have been considered a wise place to keep your money. That is no longer true. Or at least, much less likely to be true than it was. Even as these institutions gain more cachet and legitimacy, as well as being greener due to a lessened environmental impact, paying attention counts. There are still things you need to do to safeguard your money, but you would need to do the same at a brick and mortar institution as you do at an online bank.

While one of the primary areas of concern in investing is the interest rate (be sure to check the base rate as well as the APY, depending on how it’s calculated there can be different results), that is not actually the most important thing. Believe it or not, even, or perhaps especially, in an online bank, good customer service is probably the thing you want to be sure of first.

Why, because you need to be sure that you can reach your bank, preferably 24/7 with questions or problems. If your chosen locale for an online savings account is not accessible, the high interest rate may not be worth the trouble.

Another thing to be certain of before you open your account is whether deposits with this institution are FDIC backed. That is, are they covered by the Federal Deposit Insurance Commission, which guarantees that any deposit, usually up to $100,000 will be covered, even if the bank itself shuts down. Online banks are generally able to offer higher interest rates than neighborhood institutions because they have less overhead due to lack of physical locations and other expense savings. If one of the ways they’re saving money is by skipping the deposit insurance, you risk it costing you far more than any compound interest will pay you.

All of this is not to say that the interest rate in online savings accounts is irrelevant. It is not. You want to do your best to be certain that your APY and compound (interest earned on interest) interest will outpace inflation, otherwise your money may be worth less in absolute terms when you withdraw it than it was when you put it in, regardless of the actual dollar amount. It is also important to understand why you are putting this money aside and make sure that this is the best format for your money. Savings accounts, except as emergency funds, are best as short term investments, for larger dollar amounts or longer terms, another media may be best for you.