Top 5 Best Online Savings Accounts: January 2017
The best online savings accounts pay a good interest rate, are fully secured, and allow for flexibility. Find the best high interest savings accounts to consider.
Saving money is one of the smartest financial practices to have, but did you know that there's a, shall we say, dumb way of doing it?
Interest rates on the typical bank savings accounts are laughably low - the average national interest rate was only 0.06% as of October 17, 2016. Now, I spent years parking my hard-earned savings in that typical savings account you get with a bank checking account. And guess what? My savings just pretty much sat there, doing nothing. I didn't know any better. The $10 a year I was getting in interest was a joke.
And then I caught on that I could be earning a LOT more in interest with online savings account options that pay over 10x the national interest rate. Why not let your hard-earned savings work for you instead of just sitting there?
So I'm going to share my research and go over the top 5 online high yield savings accounts. Don't make my mistake (I'm still mad about all the interest I could have earned over the years) and use one of these to get the most out of your savings.
What to Look for in a Savings Account
Before we get into the recommendations, there are a few things you absolutely want to have in an online savings account:
- Security. My big hesitation was whether it's safe to store my money with someone else. No worries - the ones on this list are all FDIC insured, which means that if the bank defaults, the government will pay you back everything you had in the account (up to $250,000).
- Flexibility. Of course, you want to be able to remove your money at any time when you need to use it, without penalty. All of these allow you to transfer money to your existing checking account at any time.
Note: Note that federal regulation limits how many times you can take your money out - you can make only 6 ACH withdrawals/transfers from a savings account per statement cycle. Also know that it may take a few days for electronic transfers to complete.
- Yield rate. After I'm sure my money is secure and that I can access it, really, all I care about is the interest rate. It's pretty obvious that you want the highest interest rate you can get.
But one thing to beware of: some accounts have a minimum balance requirement. If you don't maintain that balance, you'll have to pay a monthly fee. If you're just parking your money there (which is the purpose of a savings account), then this shouldn't be a problem. But to be fair, I'm including options with no account minimums as well.
Best Online Savings Accounts
Here are the top 5 online savings accounts with high yields.
Note: Information including interest rates, benefits and fees were obtained on October 20, 2016 from published websites and are believed to be accurate, but not guaranteed.
Best Savings with Highest Interest: Popular Direct
1.15%, $5,000 minimum deposit:
The Popular Direct Savings Account is through Banco Popular North America (BPNA), a New York State chartered bank. It currently offers one of the highest rates at 1.15%.
The downside is that the minimum deposit is a whopping $5,000. And you must maintain a $500 balance in the account or else you'll be charged a $4 monthly fee. If you close the account within 180 days, there's an early closing fee of $25.
Best Savings with ATM Card: Synchrony Bank
1.05%, $0 minimum deposit:
Synchrony (which used to be part of General Electric) doesn't require a minimum deposit or a minimum balance. And there's no monthly service fee. So this makes a solid choice for those who are just starting to save. The APY rate is a respectable 1.05%.
Another great feature with Synchrony is that it comes with an ATM card, so you can withdraw savings quickly (up to 6 per statement cycle) instead of having to wait a few days for the transfer to be completed.
Best Savings for Young Adults to Open: Salem Five Direct
1.10%, $100 minimum deposit:
If you have $100 to start with, Salem Five Direct (the online branch of Salem Five Cents Savings Bank based in Massachusetts) offers a slightly higher APY at 1.10% (for balances up to $500,000). There is no minimum balance requirement and no monthly fees. Although you might not have heard of this bank, it's actually got a long banking history of over 160 years.
Best Customer Service: Ally Bank
1.00%, $0 minimum deposit:
Founded in 1919, Ally Bank was previously General Motors Acceptance Corp. (GMAC), so it's got a pretty solid history. There is no minimum deposit required to open an account (but you must fund it within 30 days of account opening) and there is no monthly service fee. The rate is lower at 1.00% APY, but many people love Ally Bank for its incredibly user-friendly site and great customer service. A real human is available to help 24/7.
Best High Yield Money Market: EverBank Yield Pledge
1.11%, $1,500 minimum deposit:
This last one isn't technically a savings account, but rather a high yield money market account. But for this article, both pretty much serve the same purpose. You can also make up to 6 withdrawals/transfers per statement cycle.
Everbank gives you a first year introductory APY of 1.11% for balances up to $250,000. After that, the ongoing APY is currently 0.61%. Everbank promises that the yield of your account will stay in the top 5% of similar accounts offered in the U.S. banking market.
You also get ATM access and a debit card, so you have easier access to your money. Everbank never charges an ATM fee. And if you have over $5,000 in the account, Everbank will even reimburse 100% of the ATM fees charged by other U.S. banks.
Why Open a Savings Account
The purpose of a savings account is to have somewhere secure to park money that you may need to use in the near future. Such as for a down payment for a house, for a big vacation, or for family planning. The reason why you want to put this kind of money in a separate account from your checking is because you don't want to accidentally spend it.
Because you may need to use this money at anytime, you want an account that lets you transfer the money out without penalty or fees. This is the advantage of a savings account, as opposed to an investment account like a Roth IRA. Even though investment accounts may offer higher returns for your money, you may be penalized and take a tax hit if you try to take out the money early.
A high yield savings account is a surefire way to grow your money a little, but remember, it's not an investment account so you're not going to get rich off of it. And it's also not a checking account, so don't set one up if you need to make a ton of withdrawals.
Is an Online Saving Account Right for You?
Before you stash your money into one of the above savings accounts, here are some things to consider:
- Do you need quick access to your money? Remember, a savings account's purpose is to SAVE money, not spend it. So an online savings account doesn't make it easy for you to get at your money. If you want to make a withdrawal (like transferring money out to your bank account), it often takes 3 days or more before the transfer goes through. And you typically can only make 6 withdrawals a month.
- Are you comfortable with web banking? Completely web-based banking means that there's no physical location where you can just stroll in and ask questions, make a deposit, withdraw money, etc. You also lose having a relationship with your local bank. Online banks do have customer support by phone (and many by web chat), but we all know how frustrating phone calls to banks can be.
- What is your financial situation? Think about what your goals are and your personal financial situation. If your situation is tight and you don't have a lot of spare cash at the end of every month, it may not be worth it to open another bank account just to keep a small amount of money in. Keep in mind that like traditional savings accounts, online savings accounts will have restrictions such as minimum deposit, minimum balance, and limits on withdrawals.
There Are Other Options Too
If you're not sure if a savings account is for you, some other options include:
- A money market account, which acts like a savings account, but gives you freer access to your money. You'll get a debit card, ATM access, and check writing abilities. But the interest rate may be lower. As we noted, Everbank provides a money market account with a high interest earning potential.
- A CD (Certificate of Deposit) is for longer term savings. It may give you higher rates, but there are limitations on when you can take out the money (such as a 2-year CD, 5-year CD, etc.). And you'll often need a larger deposit to open a CD account.
- A higher yield checking account if you need quick and frequent access to your money. It'll give you the flexibility to access your money any time you need with no restrictions. Most checking accounts don't give you any interest, but Everbank and Salem Five Direct both offer checking accounts with 0.25% APY (Everbank has a tiered system where the APY increases with a higher balance).
What is an APY?
Let's do the complicated answer first: APY stands for Annual Percentage Yield, which is the return you get over a 1-year period based on the interest rate and compounded interest (which means that your interest earns interest), and also based on the assumption that the funds will remain in the account for 1 year.
The simple answer is that, basically, 1.00% APY means 1% interest.
How are these online savings accounts able to offer such a high interest rate?
Online banks don't have physical locations, which means that they have much lower operating costs than brick-and-mortar banks. This means they can save on overhead and pass those savings onto customers by offering better rates.
Is my money safe in an online savings account?
As long as you pick one that is FDIC insured, then yes. This means that if the bank defaults, the U.S. government will pay you back every cent you had in the account, up to the FDIC maximum of $250,000. All the savings accounts in this list are FDIC insured.
Can I take my money out whenever I need to?
Federal regulation only allows you to make 6 withdrawals/transfers per statement cycle, before a fee kicks in.
What kind of withdrawals can I make?
There are 4 types of withdrawals you can make: online funds transfer (like to your own bank checking account), outgoing wire transfer, telephone transfer, and check request.
How do I make deposits?
You can transfer money from your own bank account, send a wire transfer, or send a check. A lot of online banks (like all the ones on this list) have mobile banking too, where you can deposit checks by taking a picture of it with your phone.
A high-interest savings account is a great way to make your money grow a little bit. Not putting your savings into one is literally like leaving money on the table. I wish I'd known that sooner. But I hope you're all the wiser now and will consider it if you're still keeping your money in an account with non-existent interest.