When you think of a savings account, what comes to mind? I think of vaults, deposit slips, weird bank smells, and plastic teller smiles. I don’t think World Wide Web. But, the Internet is entering nearly every sector of our lives from social to shopping, and education to entertainment. Why can’t your savings be thrown in the mix too?
Online savings accounts are becoming so popular because they offer higher rates and fewer expenses than traditional branch banks. How are they able to offer all of this over their non-virtual competitors? Branch banks are named so because of their physical presence. However, it’s lack of buildings, and maintenance costs, that allow Internet banks to stay lean. Since online banks don’t incur exorbitant real estate costs they can pass the savings along to you, the consumer.
At its core, the Internet is a rapid data transferring service. (Money is data people.) Think about your weekly transactions. How many purchases do you make using a card, and how many with physical money? The ratio is probably skewed toward your card. (The card is dying too but that’s another day. Give Google Wallet a try.)
With that said, here are some things to consider when selecting the best savings account:
Average Percent Yield (APY): is a representation of the earnings you should expect on a per year bases. The yield is a compounding rate, meaning your money will earn money. When analyzing different accounts just know that a higher APY is a better APY. Try to get as close to 1% as you can when shopping different savings accounts.
Money Market or Regular Savings: If you’re really looking to save use a money market. The accounts grow you’re wealth faster because you’re allowing the bank to further invest your money. Banks use your funds to buy government and corporate securities. Though there is some risk involved, you also receive a higher reward. Many regular savings accounts have high APYs too, but money market accounts are going to increase your investment the fastest, in most cases.
Avoid: accounts that impose minimum balances and ridiculous service fees. There are plenty of accounts out there that not only provide high APYs, but also don’t impose fees. Also, avoid dedicating a tremendous amount of funds to your savings, if you’re in debt. The interest rate on your debt is going to far exceed even the highest APY.
With that said here are three accounts that exemplify everything I’ve mentioned. However, everyone has a different better, so do your research and ask a lot of questions: