I’m a big fan and user of online savings accounts (also called high-yield or high-interest savings accounts) as part of our overall financial strategy. Here’s why:
First, they are out of sight, out of mind from our checking accounts. This makes the money feel a lot less available, even though we could transfer it over in a few days notice. A lot of the banks that offer online savings accounts also offer great checking account options. I recommend keeping your checking account completely separate.
They earn interest! Right now you can get over 2% in your online savings which is over 200x better than what we get with our brick and mortar banks. If we keep a $15,000 rainy day fund in our online savings accounts, at 2.2%, we’d earn $330 per year for doing nothing.
They are free. These accounts should cost no money to set up and there are no monthly fees or other hidden fees.
You can set up useful automations. In these accounts you are able to open multiple accounts and name them different things at no additional charge. I find it really helpful to have every dollar in savings have a job, rather than have a big blob of savings that you have to account for you in your head. You can open accounts for each of your goals and fund them with automatic transfers.
Once we decide whether or not we want to incorporate online savings accounts into our financial picture, it’s time to choose an account. Here’s what to look for in an online savings account:
It’s free. There are plenty of free options to choose from.
You earn some good interest. Around 2% or more at the time I’m writing this but look around at different rates.
It’s FDIC insured. Most are but this protects you for up to $250,000 if something were to happen to the bank.
Reviews. We want these to be easy to use and know that people have good experiences with the company.
Other things to ask yourself:
Do you prefer to use an app or typically use your computer? If you like to use your phone for banking, read some reviews on the apps. The quality varies.
Do you already have an account with someone who has a good online savings option? If the company you use to invest, for example, has a great online savings account, you might decide to have them in one place (and under one login / password!). With that being said, most people have the best success with online savings accounts that are completely separate from where they have their checking accounts. Even though a lot of these places have checking accounts available, I’d recommend keeping them separate.
How often do you plan to transfer out? For online savings accounts you can’t transfer money out more than six times per month. In most cases you aren’t charged a fee for going over the limit, they just politely kick you out of the account.
How do you interact with the bank? Most offer phone support and others offer chat support. Hours vary. Take your preferences and schedule into account.
Here are my favorite online savings accounts right now.