The internet has changed the way we handle money whether that’s shopping online, paying bills, or investing money.
Now, add online banks to the list as well. Investors and internet-savvy people are turning to online savings accounts as a smart alternative to the traditional brick and mortar banks. And, it’s paying off.
“If you actually look at your retail, brick and mortar banks, the interest rate your getting versus what some of these online banks offer, there’s a huge difference,” said financial planner and founder of Workable Wealth, Mary Beth Storjohann. “A lot of people are leaving money on the table by not switching to these online banks.”
In fact, some online savings accounts offer as much as 2.36% APY (Annual Percent Yield) according to a review by Nerdwallet.com.
That’s essentially free money considering traditional banks offer rates far less, anywhere from 1 percent and down.
The reason for the higher savings rates, most online banks do not have to shoulder the costs of operating a retail business.
“Online banks don’t have the same overhead,” said Storjohann. “They don’t have the staffing and the technology has made it far more competitive.”
And while the returns are good, there are some drawbacks to switching entirely to online banks.
Storjohann recommends using a traditional bank or credit union for checking accounts. Doing so will make it much easier to handle day to day business.
Another thing to keep in mind, many of the online savings accounts require a minimum deposit to open an account. But if you’re in for the long haul, saving for a house, college, or other big ticket items than an online savings account could be a smart choice.
“I actually keep my emergency funds in a high yield savings account,” said Storjohann. “I recommend them to my clients all of the time.”