Best High Yield Online Savings Account List Updated January 2015
“Find the best high yield online savings account” is always my advice when people ask me for recommendations on where to park their money allocated for possible short term use. These high yield online savings accounts have:
- Liquidity and Flexibility – Money is accessible right away via online transfers (available usually in 2 business days)
- Safety – FDIC insured (bullet proof)
- High Yield with Good Rates – Pretty much the highest return on your money for the safety that it provides right now.
Many institutions are reducing their once high yields down to levels that are close to zero, but some online savings accounts are still offering rates that are worth the effort to seek out. If you have cash sitting somewhere not collecting interests, you ought to look at these high yield accounts as an investment vehicle that’s virtually bulletproof. Here are a few that I have personal experience with and feel comfortable recommending. This list is up to date as of January 2015.
Discover as a credit card issuer is no stranger to us, but Discover as a bank might be. They are now a FDIC member bank and have started offering an online savings account option of their own. Initially, their user interface was really lacking but they are starting to make improvements to it that makes it a solid choice for consumers. If you are interested, check them out and see how they stack up.
- Current Yield – 0.90%
- FDIC Insured So Your Money, Up to $250,000 Per Account, Is Safe
- Requirement for High Deposit is Unknown But Their Premium High Yield Savings Account Has a Higher Rate
- Interest Rate Trend in the Last Month: Steady
EverBank is one of those online banks that you should definitely take a look, because they have always been offering rates among the best in the industry. For further information, read my EverBank Review)
- Current Yield – 1.40% (New Accounts Get This Bonus Rate for 6 Months on Up to $50k)
- 1.01% APY for the First Year (Up to $50k, and Must Be First Time Money Market Customer)
- FDIC Insured
- Even the Checking Account has Amazing Yield
- Interest Rate Trend in the Last Month: Steady
From a local bank that started in Omaha during 1857, First National grew to having over $20 billion in managed assets with 7,500 employees in over 150 years. Being the biggest private bank in the United States, First National also prides itself as providing one of the best (if not the best) customer service in the whole industry (Here’s a more in-depth review of FNBO Direct).
- Current Yield – 0.75%
- FDIC Insured
- Biggest Private Bank with Outstanding Customer Service
- Interest Rate Trend in the Last Month: Steady
Capital One is a well known financial institution so I’ll spare you the details of who they are, but the company is showing a serious commitment to the online savings space with its acquisition of long time player ING Direct. Their savings option is FDIC insured so it’s solid, and the rate is decent too.
- FDIC Insured for Up to $250k
- No Minimum and Easy Signup Process
- Interest Rate Trend in the Last Month: Steady
And for those interested in looking at more options, here is a full list Bankrate helped put together:
How to Find the Best Online Savings Account
When we compare different products at first, we look at all the bells and whistles but we usually end up caring about none of them after we start using the service. What I found with online savings accounts are that:
- Pretty much all of them are FDIC insured.
- The difference in interface means nothing because I get used to it after a while.
- Some features, like the FNBO Direct free bill pay or a debit card, are great but I can always find an alternative way of accomplishing the same thing.
So nowadays, all I really care about is the rate, and the history of how the institution lowers and raises rates. To that end (and this is subjective), my ranking for the banks are:
- Discover Bank – The rates are among the highest, but if you qualify for its premium level interest rates, it gets even better.
- FNBO Direct – The website is simple (which is a good thing) and easy to use, plus the rate is amongst the best out there. FNBO could easily be first as their rates go up in the future.
- EverBank – The bank has always provided one of the best rates out there, so it’s well worth a look since you never know how the rates will change in the future.
Note: Once again, this is subjective so take the ranking with a grain of salt. Also note that there are many options out there and these are actually the ones I recommend. So just because Everbank appears last doesn’t mean it’s no good. In fact, I still highly recommend them to anyone that asks.
How Online Savings Accounts Save You Money
If setting up an online savings account is something you would like to pursue, you will want to know how to save money with online savings accounts.
First, you need to have a bit of savings to open an online savings account. No, it’s not because of the account minimums which is at $1 for some banks, but rather for the effort to make a difference for you. Since this account will be accessible for transfers between this account and your regular savings and checking accounts, you can use these funds however you want, to pay bills, replenish your checking account, etc. But you must keep in mind that it can take up to 4 days to have funds from an online savings account transferred into another account.
Although this instant inaccessibility may at first seem like a drag, in the long run, you may find that it acts as a deterrent for reckless spending. You cannot access this account in any other way than by transfer. For most options, no checks can be written from an online savings account, nor can you access it by ATM.
Online savings accounts can garner interest rates as high as 6 percent (in the good old days) and more than 2 percent (currently), so why would you let your money set in a regular low interest savings account?
To begin, look at the list above for the best rates. There are even online savings accounts available from well known banking concerns that have been around for generations.
Once you have selected the place you want to open an account, click through to their website and fill out the necessary online forms. The questions are the same as those you need to answer when opening up any bank account but the do it yourself approach usually saves you quite a bit of time.
Since there are no fees imposed when transferring funds from one account to another, you may find that you want to open more than one online savings account and take advantage of any higher interest rates being offered. There is no limit to the amount of transfers you can make between accounts.
Investing in other investments may offer higher returns, but an online savings account lets you transfer funds without penalties or added fees. Although your money is in a secure place, you can transfer it to your regular checking or savings account whenever you want, keeping in mind that the transfer can take up to 4 days. You can also transfer funds from your regular checking and savings account into your online account at any time, thus taking advantage of the higher interest rates online savings accounts offer.
So you make money with online savings accounts because of the higher interests they pay, and, because it takes days to finalize a transfer, you are less likely to use funds from your account, thus allowing a profit buildup that you would not garner in a regular savings account.
How to Get a Better Experience with Online Savings Accounts
One of the biggest fears of opening an online savings account is the fact that there is no physical branch. For some, there’s a misconception that for some reason, it’s not as safe if you run into any problems. In fact, many people on the web have expressed concerns with different banks even though the banks themselves offer a solid savings product. If you want to keep your sanity and take advantage of the higher yield that these savings account offers, here are some tips for you.
- Account Opening – Make sure you are filling out the correct information to avoid your account being put on hold. Most of these banks will automatically approve you if everything checks out, but this won’t be the case if you say, your social security number doesn’t match your name. Also, some people would mistakenly type in the wrong initial deposit amount and expect the online bank to correct it on the fly. If it’s your mistake, own up to it and work with the banks nicely to see if either institution will reimburse the overdraft fees charged.
- It’s a SAVINGS Account – Even though it’s very convenient, it is still a savings account. So many people treat it like a checking account and try to pay bills with it even though it’s not the intention. Consequently, they run into the six withdrawal per month limit set by the government and complain why they are charged a fee.
- Initial Deposit Hold – Most of the banks will hold your initial deposit while they try to receive your funds. Expect five to ten days where your money will be inaccessible at the beginning. Fortunately, your bank will allow you to start earning interest on your money even though it seems to be inaccessible.
- Transfer Takes Time – Like it or not, transferring money from one bank to another takes time. In most cases, it takes three business days or so. Again, this is a savings account. If you expect every transfer to be instant, perhaps you should keep your money at your local bank earning 0.10% interest annually.
Of course, some of the complains of certain companies are legitimate and should be addressed on a case by case scenario, but most of us have nothing to worry about as long as we follow some simple guidelines.
What is an Online Savings Account?
If you are interested in earning the highest possible interest rates on your savings account, you need to ask yourself the question, “what is an online savings account.” An online savings account is an essential money management tool that allows you to maximize the interest rate you get on your money, while minimizing the risk associated with higher interest rate investments like stocks, bonds or other investment vehicles.
An online savings account is a traditional savings account, like those you would find at a standard brick and mortar bank or credit union. An online savings account is simply a method of putting your money into a savings account and earning interest. Most online savings accounts are FDIC insured, up to the maximum limits for an FDIC insured account. They are thus risk free savings vehicles that allow you to earn interest on your money.
An online savings account may have many benefits over a more traditional brick and mortar account. The main benefit is that you tend to earn a higher interest rate on money in an online savings account. As of 2009, the interest rates for online accounts could be as much as 3.0% higher than an interest rate paid on a traditional bank account opened at a local bank.
Online savings accounts are able to offer higher interest rates because they tend to have lower operating costs then a traditional bank. While a traditional bank must maintain a building, and pay tellers and other customer service personnel, an online savings bank does not typically have standard retail banks. All transactions, including most customer service activities, are conducted over the Internet. The online banks take advantage of these lower overhead costs to pass the savings on to consumers in the form of higher interest rates. This helps online banks attract customers and encourages customers to invest their savings in one of these Internet institutions.
Online Savings Accounts Versus Traditional Savings Accounts
There are a number of differences between online savings accounts and traditional savings accounts. The main difference, of course, is the higher interest rate paid by an online account. However, there are several other important differences that you should consider when opening an online bank account.
Depositing and Withdrawing Money
When you deposit money in an online savings account, you must do so wirelessly. There is no ATM to go to to deposit your paycheck and no teller window to go to where you can hand over cash. This means you either must send in a traditional paper check, or use a completely wireless method of transferring money.
ACH transfers or wire transfers are the most popular way to fund online savings accounts. You can initiate a transfer from the online savings institution or from your own local bank. If you initiate a transfer of money from the online savings account website, you give the online account access to your local bank account. The online account then transfers the money from your traditional bank account into their account. The withdraw will show up as a withdrawal on your bank statement. In many cases, no fees are charged for this. You can also initiate the money transfer from your bank to your online account, setting it up as a bank-to-bank transfer. In some cases, there are fees associated with this, so ensure you check your local bank’s rules regarding transferring money electronically online.
Withdrawing money works in much the same way. Your online savings account will either allow you to transfer money from the account to your regular bank, or they will send you a check for the amount of money you want to take out. Again, there may or may not be a fee charged for these services, so check the rules with your online savings account.
As a savings account, you do not have “check writing” privileges from your online savings account. This means you cannot usually make bill payments directly from your online savings account. In most cases, you cannot make payments directly from any savings accounts, since the purpose is to save the money and not spend it, so in this regard there is little difference between your online savings account and a standard savings account.
Customer Service Options & Banking Interface
Most online savings accounts also offer online customer service. This can come in the form of email support or online live chats. Some online banks offer traditional 1-800 numbers where you can get customer service help and advice as well. Again, there is no physical location so you cannot go and speak to someone in person about questions with your online savings account. You must be comfortable interfacing with your account primarily in an Internet format, so make sure the website for your online bank is easy to navigate.
Interest Rates on Online Savings Accounts
Since the major benefit to online savings account is a higher interest rate then a traditional account, you will want to make sure you get the best interest rate possible. You can do this by using one of the many online tools available to compare interest rates for online savings accounts.
Some of the online savings accounts that pay the highest interest rate have high minimum or daily balances for opening an account. This means you must open the account with a set amount of money and keep that amount of money in the account on a daily basis. Ensure that you check these rules when opening an account so you do not end up being charged fees.
Opening an Online Savings Account
Online savings accounts can be opened online from the website of the bank that you select. Many online savings accounts will offer you a bonus or incentive for opening an account or making an initial deposit. These bonuses can range from $25 to over $100 or can come in the form of a free gift. Some online savings accounts even offer a referral bonus if you get friends and family to open an online account with their bank. Be on the lookout for these offers to maximize your potential savings and to jump start your online savings account.
Restrictions on Online Savings Accounts You Should Know About
Online savings accounts have a number of potential upsides, including higher interest rates than traditional accounts, but unfortunately there are a number of restrictions on online savings accounts that you should be aware of before you invest your money online.
Minimum Balance Requirements
Some of the highest paying online savings accounts have minimum opening balances or minimum daily balances. This means you have to have a certain amount of money to open an account, and you have to have a certain amount of money in there at all times. If you allow your balance to dip below these mandated minimums, you could find yourself facing hefty fees and charges. These fees and charges may negate all of the potential benefit you get from the higher interest rate.
Monthly Contribution Requirements
Online savings accounts may also require you to contribute or add a certain amount of money each month. One of the highest paying online savings accounts, offered by WestBank, requires a monthly contribution. Certain other accounts have this stipulation as well. The minimum amount you need to contribute each month varies, but be aware of this and ensure that you can fulfill the rules before signing up for an online savings account that has this feature.
Limit on Transfers and Withdrawals
Some online savings accounts limit the number of transfers you can make to the account. Both adding money and taking money out can be limited. Money markets, for example, are one of the highest paying online savings accounts, but these types of accounts have the most restrictions on online savings accounts.
Federal rules mandate that in most money market accounts, no more then six withdrawals or transfers occur on a monthly basis. This means that you cannot put money in or take money out at will; you must comply with these regulations.
Some online savings banks also add their own limitations and rules for getting money into, or out of, the account. These rules can cover everything form how much you are allowed to take out at one time, to how often you can take out money. If you are uncomfortable about these types of restrictions, don’t choose an online savings account that puts these limitations on you. However, understand that many of the higher interest rate accounts do have some type of regulations regarding access to your cash.
Slow Withdrawals and Deposits
Savings accounts in general, including online savings accounts, don’t usually come with a debit or ATM card for fast access to your cash. Money in a savings account is meant to be saved. However, when you have a savings account at a standard local bank, you can walk into the bank and take out money if you need it. This is not the case with online savings accounts, which by definition exist online and not in person.
Since there is no local branch, you need to wait for funds to transfer if you want to deposit money or if you need access to your savings. Depending on the bank, this wait can be anywhere from two to three days to a week or more. The method by which you get your money can also be limiting. Most online banks will either transfer money from your online savings account into a standard bank account, or will send you a check. Both of these things take time, and there may be fees associated with them. If you need fast access to your savings on a regular basis, this restriction for online savings account may prove to be an impossible barrier for you to overcome.
Customer Service Issues
With online savings accounts, the days of the friendly neighborhood banker are officially gone. There are no tellers for you to see, and no local bank branch with a helpful manager who you can go to with your concerns. Most online savings accounts offer customer support through email or through online chat. If they do have a telephone number, the telephone calls may be routed overseas, or there may be long hold times or limited support.
If you are not comfortable navigating a web environment, an online savings account may not be right for you. Most websites are easy to use and provide features that are designed to help the customer, but a certain amount of technical know-how is still required to find your way around the site and get the technical help you need.
Interest Rate Caps
While online savings accounts tend to pay more then in-person savings accounts, the interest rates are nowhere near as high in 2009 as they were in times before the recession and the fall of the stock market. In 2006, 2007 and even into 2008, it was possible to find online savings accounts or money market accounts that offered an interest rate somewhere between three percent and five percent.
Though online savings account rates are good for an FDIC insured account where your money is safe, the rates may not match the rate-of-return you could get with other investments. You will need to weigh the risks of other higher return investments with the relative safety, but lower interest, growth of online savings accounts to determine whether this investment option is the right choice for your money.
Evaluating Online Savings Account Restrictions
When selecting an online savings account, consider what is most important to you. You will need to look at your own personal income situation, the likelihood that you will need ready access to your money, and your comfort and familiarity with web based banking. While the decision to use an online savings account may not be right for everyone, if you do not feel the restrictions are inhibiting, then it may be the best solution for your monetary investment. An online savings account can certainly help money grow faster then a local savings account with a smaller interest rate, and in many cases it makes sense to get the most interest for your money.
Interview with an Industry Expert on Online Savings Accounts
Even experts agree. Online savings accounts are a much better option for your savings. Here’s an interview with bankrate.com’s senior analyst Greg McBride and his take on these high yield savings.