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 (01.11.2019)
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 1.85% APY on all savings accounts balances with their MMA. 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 2.10% 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 choose one without a high minimum. WT Direct used to be an example of a bank with a relatively high balance requirement ($10,000 minimum).
- Discover Bank – Discover Bank’s interest rate currently sits at 2.00%. Customers pay no monthly fees or minimum balance fees on the account, and it has no minimum opening deposit amount. For CDs, Discover Bank is one of the best, and I can attest to that first hand. I have a 10-year IRA CD opened up at 2.70% (when I signed up years ago) and today’s rate is the same. Also, their customer service is top-notch.
I’m not terribly picky when it comes to bank interfaces. As long as the site is secure and functional, I’m pretty happy. That being said, some sites are certainly slicker than others. One of my favorites in this regard is an online savings account you may not have heard of. SmartyPig offers a clean interface with easy management. I’ve yet to encounter a single bug in its system.
- SmartyPig – Here’s another place I have a savings account. SmartyPig offers 1.80% APY on balances of $25,000 or more (1.50% APY on smaller balances). Their interface is my favorite of any bank. I’ve set up an automated deposit feature where every two weeks, I’m making sure money is coming from my checking. SmartyPig also offers the ability for others to deposit into your account. Unfortunately, SmartyPig only offers an online savings account.
Other Account Types
If you want more than just a savings account, be sure to check what other account types your bank of choice offers, as well as your options for linking them together. For example, Capital One 360 offers an online checking account that that you can link directly to your savings account. Taking this a step further, EverBank offers checking, savings, and money market accounts, as well as a wide range of CDs that you can purchase in a wide range of currencies.
Another possible consideration is access to a brokerage account. Here again, Capital One 360 doesn’t disappoint, as you can link your account directly to a Capital One investing (previously ShareBuilder) account. Likewise, E*Trade offers both high-yield savings accounts and access to their brokerage accounts.
- Capital One 360 – The current APY on the Capital One 360 Money Market Account is 2.00%. Let’s be honest … that pretty good. In addition to a high quality APY, Capital One 360 also has a lot of other account options. Online checking account, overdraft line of credit, money market account, and investment account are just some of the other ways you can be earning interest with Capital One (and their rates for those accounts are just as competitive).
Customer service is sort of a funny thing when it comes to online banking. If all goes well, you’ll never need to interact with a real, live person. But if something goes wrong, you’ll likely want to get someone on the line. While many banks have 24-hour customer service lines, some don’t. If this is important to you, be sure to check it out (and maybe call to test their hold times) before selecting a bank.
Another factor that I’ll lump in here with customer service is the time it takes to transfer money in and out of the bank. Some banks are quite good at this (like Ally Bank for example), consistently completing your transactions in two days, whereas others (HSBC Direct for example) drag their feet a bit and take a full three days. Not a huge deal, but it’s something to consider if you’ll be shuffling money around on a regular basis.
- Ally Bank – When Ally Bank changed their brand (from GMAC bank), they put an emphasis on customer service. If you need to get a hold of them, they have an online chat feature available 24/7, plus email and phone support. Ally Bank’s online savings APY is 2.10%, and they’ve gone a bit outside the box with their CD offerings. If standard CD’s aren’t your thing, you can invest in a raise-your-rate CD or a no-penalty CD.
This one has never really been an issue for us, as we keep enough money in our local bank to avoid needing regular ATM access to our savings. Nonetheless, it’s an important consideration for some customers. Beyond asking whether or not your bank of choice offers an ATM card, you also need to consider fees. Some, such as CapitalOne 360, offer free ATM access via specific networks. But others do not. FNBO Direct also offers free access to a specific ATM network (Circle One), and both E-Trade and TIAA Bank reimburse you for ATM fees for any transactions outside their ATM network.
As with most consumer decisions, selecting the best online savings account is all about trade-offs and finding a happy medium. What’s more important to you: interest rates or safety ratings? Online interface or minimum balance requirements? Every bank you see recommended above is a quality bank. Your money is always FDIC insured, and the interest rates are among the best anywhere.
Depending on your own personal needs, picking any one of them to put money away is a good decision.