I’m
a huge fan on online banking. In fact, we opened our first online
savings account with ING Direct over five years ago, and we haven’t
looked back since.
Sure,
we still have a local brick and mortar bank for convenience, but we
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
because I enjoy rate-chasing, and in part because I like reviewing them
here on FCN. With that in mind, I wanted to talk a bit about what I look
for when evaluating an online bank.
Interest Rates
One
of the biggest factors that I consider when evaluating an online bank
is their interest rate. While online savings rates can fluctuate
dramatically over time (just look at the downward spiral we’ve
experienced over the last few months), certain banks are consistently
amongst the best (or worst) of breed.
For
example, ING Direct is typically amongst 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 FNBO Direct, DollarSavingsDirect, and Everbank
have consistently ranked near the top in terms of interest rates.
Bank Safety
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 we stay below the FDIC insurance
limits.
Aside
from bank stability, you also want to find one that is secure. 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.
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, and 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, then
be careful to choose one without a high minimum. WT Direct is an
example of a bank with a relatively high balance requirement ($10,000
minimum).
Online Interface
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 our old standby, ING Direct. They not only have a very clean
interface, but they make it dead easy to create subaccounts for
different savings goals.
Other Account Types
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, ING Direct now offers an online
checking account that can be linked 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 can be purchased
in a variety of currencies.
Customer Service
Customer Service
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, then 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 (e.g., ING Direct), consistently completing your
transactions in two days, whereas others (e.g., HSBC Direct) drag their
feet a bit and take a full three days. Not a huge deal, but something to
consider if you’ll be shuffling money around on a regular basis.
ATM Access
ATM Access
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 ING Direct, offer free ATM access
via specific networks (Allpoint in the case of ING) whereas others do
not.
Closing Thoughts
Closing Thoughts
As
with most consumer decisions, selecting the best online savings account
is all about tradeoffs and finding a happy medium. What’s more
important to you, interest rates or safety ratings? Online interface or
minimum balance requirements? For us, the top two options are FNBO
Direct and DollarSavingsDirect. The former excels in nearly every
aspect, whereas the latter outperforms in terms of interest rate, but
lags a bit in other areas.
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