Online savings accounts – what’s the catch?
Where I live the interest rate on a brick-and-mortar savings account with a $100 minimum balance is 0.10%. Yes, 1/10 of one percent. If you’re willing to keep a minimum balance of $10,000, that rate increases to 0.40%.
Compared to that, a rate of 4.50% to 5.05% (or more, with a promotional rate) with a $1 minimum balance at banks like ING Direct, HSBC, and Emigrant Direct probably seems too good to be true. But it’s not. So what’s the catch?
Really, the only catch is that you can’t walk up in person to your online-only savings account to make a withdrawal or deposit and have it take effect almost immediately. You have to make withdrawals and deposits over the computer, and they take between 2-5 days (depending on the bank). You also have to have an account at another institution to transfer money to and from. There are no fees for the transfers, unless your other bank charges one. (Most don’t.)
And like the banks that pay the 1/10 to 4/10 of a percent interest on savings accounts, these online banks are FDIC insured. They just give you more money, because their overhead is lower.
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March 30th, 2007 at 7:04 am
I have both an ING Direct and Wells Fargo PMA account, paying 4.5% and 5% respectively. It takes a few days to get money in or out of these accounts but that’s alright. If I’m worked up about buying something, this forces me to think for a few days and cool down before the money arrives. It helps more than it hurts, let’s put it that way.
March 30th, 2007 at 8:57 am
Now that ING is offering a checking account, they have eliminated virtually any wait period on your savings as long as you can get to an internet connection to transfer money. Personally, I don’t want that much access to those savings funds so I’m not going to open an account but I imagine for some, this is the last barrier to using these much better rates!
Peg
March 30th, 2007 at 10:30 am
HSBC’s online savings account (HSBC Direct) eliminates the “catch” by providing an ATM card. Their bank-to-bank transfers still take a few days (some claim they’re slower than ING Direct, Emigrant Direct, etc), but you can also immediately pull your money if you need it. This additional option is great for emergency situations.
March 30th, 2007 at 10:31 am
I have an ING Internet Savings account in which I deposit $200 automatically every other week, 2 days after I receive my paycheck. They won out over the Citibank internet savings account since even though the latter’s interest rate was somewhat higher, they required you to open a checking account with them. I don’t need any more accounts thank you very much, so they lost.
March 30th, 2007 at 4:17 pm
I like the slight delay myself — it’s sort of incentive to plan ahead. I have both an ING and an HSBC account, but don’t have Orange Checking or the HSBC ATM. My theory is that if I really have an emergency I can just put it on the American Express, and then transfer the money to pay it when it’s due.
March 31st, 2007 at 9:37 am
I have an ING savings account and really like having it so far. I haven’t checked into the other online savings accounts yet. I’ve considered the Electric Orange checking account–but I do not see a huge advantage to getting one–since I will still need my regular checking account, and it is free.
April 1st, 2007 at 5:42 pm
Yeah, but I do miss that personal interaction with a teller. To have him or her smile and ask how my day has been is priceless. OK, I’m over it.