Get better interest with online banks

by Jen (April 10, 2008)

Savings account interest rates are falling steadily, but you can maximize your savings and convenience by banking online. This list doesn’t include every bank, but it should get you started.

Things to know about online banking

All the banks listed here are FDIC insured. That means that in the event they fail, you’ll get your money from the government within a very short time. Online banks are just as safe as offline ones, and in fact many of them are the same companies.

Online banking is terrifically convenient. Some people worry about the safety of entering passwords online and conducting your transactions where hackers might somehow see it. This is always a concern, and banks are under strict regulations to keep their systems up to the latest anti-fraud technology. But when I consider how many underpaid employees have access to my offline banking information, and also the possibility that my bank’s computers could be hacked, I don’t think my money is any less safe online.

Some high-yield online savings accounts

IGoBanking offers one of the highest interest rates available without monthly fees, a minimum balance requirement or an opening balance of more than $1. You get the convenience of online account management 24/7. You can have your employer direct deposit your checks into it, or you can transfer money from your checking account into it anytime (and vice versa). Their website doesn’t mention whether you can set up automatic monthly deposits to keep your savings on track, and when I called customer service, I was placed on hold for 8 minutes before losing patience and deciding that wasn’t the online bank for me. This led me to…

FNBO offers almost the same interest rate and all of the same features and low-to-no minimums. You can definitely schedule automatic deposits, direct deposit, etc. There’s an optional BillPay solution, as well as optional VISA card that earns you 2% on every transaction for 12 months. (I signed up with FNBO today.)

HSBC offers a quarter-point lower interest rate than FNBO, but all the same basic features and lack of fussy minimums, including an online billpay account and an ATM/debit card for purchases and offline banking at ATM machines.

INGDirect and Etrade offer slightly lower interest rates than HSBC on roughly the same features, including no minimum balance and $1 to open.

GMAC offers roughly the same rate as ING and Etrade, but with a minimum balance of $500 and a minimum opening deposit of $50. Why am I mentioning them? Because they include a check card, which for some people is worth the higher minimums and slightly lower interest.

PayPal is another option. They offer a money market account with a lower interest rate than the others, but the ability to pay online vendors without ever showing them your credit card info. You can also accept payments online (via credit card, even) and get an optional debit card for use in stores. You may want to store most of your savings in a higher-yield account, but keep a couple hundred in PayPal for all those other reasons (that’s my solution.)

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