Online Savings Accounts

In this post I decided to take a stab at reviewing the different online savings accounts. This type of investment is probably the simplest and no-brainer form of investment one can make. Now, you will probably say you dont need one, you already have your bank, which you can go to anytime you like, withdraw your money out of the ATM, can pick up the phone and talk to anyone at the branch. Let me ask you one question - how much interest do you earn ? The biggest and probably the only advantage online banks have over the traditional brick and mortar banks is the
APY - annual percentage yield or in simpler terms, compound interest.

Advantages of online savings over traditional banks, CDs and money markets:

• Online savings accounts these days pay around 5% APY which is 10 times more than the national savings rate these days, which stands at around 0.5%.
  
• Online savings banks are also better than the traditional certificates of deposits or CDs which pay around the same rates, if not less, and penalize you for early withdrawals of your money. Most CDs also need a certain minimum balance, and if your balance falls below that minimum, you get penalzied. With online savings, you can withdraw your cash anytime you like, and no minimum balance - ye!
  
• The traditional money market average stands at around 4%, but most money market accounts need a higher minimum balance to give you that kind of APY.

Disadvantages of online savings accounts:

• Except for HSBC Direct, most online savings do not offer the option of an ATM card, which means you have to transfer money to your traditional bank and then withdraw. This entire process can take anywhere from 3-5 business days. So, you got to plan accordingly to get money in hand at a particular day.

Comparison of popular online savings accounts:

ING Direct:

• APY: 4.5%


• 24-Hour Support: No


• Checking Account required: No


• 
  ATM card: No
  


• Minimum balance to open account: $1


• Online Bill Pay: No


• Online CDs: Yes

HSBCDirect:

• APY: 5.05%


• 24-Hour Support: Yes


• Checking Account required: No


• ATM card: Yes


• Minimum balance to open account: $1


• Online Bill Pay: Yes


• Online CDs: Yes

Presidential Online:

• APY: 5.25%


• 24-Hour Support: No


• Checking Account required: No


• ATM card: Yes


• Minimum balance to open account: $100


• Online Bill Pay: Yes


• Online CDs: Yes

Emigrant Direct:

• APY: 5.05%


• 24-Hour Support: No


• Checking Account required: No


• ATM card: No


• Minimum balance to open account: $1


• Online Bill Pay: No


• Online CDs: Yes

Citi Direct:

• APY: 4.75%


• 24-Hour Support: Yes


• Checking Account required: Yes


• ATM card: Yes


• Minimum balance to open account: $1


• Online Bill Pay: Yes


• Online CDs: No

WaMu (Washington Mutual):

• APY: 5.0%


• 24-Hour Support: Yes


• Checking Account required: Yes


• ATM card: Yes


• Minimum balance to open account: $1


• Online Bill Pay: Yes


• Online CDs: No

All the accounts mentioned above are FDIC insured upto $100,000

Disclaimer: I currently have accounts with ING Direct and HSBC Direct

Why Invest ?

In this blog I will write about investments and finance (in general, money). If I can convince some people to start investing now, my blog will have served its purpose. I know a lot of people who dont invest, for the fear of losing money or because they are just too lazy to start off. Guys think about this - $10000 invested today, at a converative rate of 10% compounded, will amount to $25,937 10 years from now. At a little more aggressive, but not unrealistic, rate of 15% compounded annually, it will amount to $40,455 (do I hear a wow now ?). And all investments dont have to be risky - you can start off with something as simple as an online savings account (which offer around 5% APY these days), then progress to bonds, mutual funds, stocks, real estate etc. There are few things to keep in mind - the timeframe of your investment, your appetite for tolerating ups and downs in your profits and/or principal amount, and your expectations. I will share my knowledge and experience about these different types of investments in future posts.