Having a high interest savings account with an online bank these days just makes sense. I don’t particularly care whether you choose a money market account, a savings account, or even a high rate CD for that matter. Whatever account type suits your needs, you are far more likely to earn a respectable rate of interest on your deposits.
Online High Interest Rate Savings Accounts Keep Up with Inflation
The nice thing about using an online high interest savings account is that the competition for deposits is so high that online banks are forced to quickly adjust their interest rates to market conditions. If rates suddenly start rising at other banks, your online bank is going to follow suit in order to remain competitive. Given that savings account interest rates rise and fall with real interest rates and inflation it only stands to reason that a online high interest savings account is going to keep up with inflation.
Aren’t Savings Accounts for Old Folks?
The old thinking was that putting money in a savings account or CD was for retirees living on a fixed income – but I’m betting more than one 40-something year old has watched his or her 100% equities invested 401K performance go in the toilet in the last decade (need further proof? – see the high rate CD vs. S&P500 post – it’s a tragedy). The new thinking needs to be that equities are in fact issued by the poorest performing businesses. Companies that generate sufficient cash flow to fund their operations and grow don’t NEED to raise additional funds (by issuing stock) in the market. It stands to reason that companies that need to issue stock aren’t generating enough cash to compete on their own. Better then to consider keeping your money earning at a rate at or better than inflation until such time a better investment opportunity comes along.
What’s the Best Way to Open an Online Savings Account?
The best way to open an online savings account is to select an FDIC insured bank that pays a rate that is competitive with other online banks. Today most online savings accounts are around 1.3% +/- – and virtually all offers are identical – although some banks are offering introductory higher interest rate accounts (either savings, CDs or money markets) in order to attract more deposits for the next few months. It’s definitely worth it to take the teaser rates – as some are substantially higher than the going rate for savings and money market accounts. There are restrictions on those teaser accounts but it’s worth the extra restriction if you can afford to sit on the money for a month or two while the teaser interest rate remains in effect.
The main point I’m trying to get across here is that if you’re sitting on a pile of money in your local checking or savings account you are really doing yourself a disservice by not having it earn a competitive income via a high intest savings account, a high rate CD, or money market account online. There are plenty of good banks offering decent interest rates and good teaser interest rates as well. Don’t let you money lie in a dead account.
Some money in the savings account is a good idea, because you never know when you might need it. If the money is in a high interest rate savings account its even better, because the money is still easily accessible and you are making some nice interest on your savings.