Online-only banking is one of the hottest trends in personal finance, but plenty of people are still curious as to whether it’s worth making the switch.
The real difference lies in savings rates.
According to a new study by MoneyRates.com, online banks carried interest rates up six times higher than bricks and mortar competitors in the first quarter of 2013. While the nationwide interest yield dropped during the quarter, savings rates at many online banks rose.
10 online banks on MoneyRates.com’s list had interests rates of more than 0.5%. Ally Bank had the highest savings rate listed on the list, at 0.903%, and American Express was right behind at 0.878%. Those numbers blew past the average savings rate of 0.105% at branch-based banks.
How’s this possible? For the most part, online banks have far less overhead costs to worry about than big banks. That frees them up to pass those savings on to consumers in the form of fewer fees, deposit requirements and, of course, interest rates.
If you’re looking to stash your cash in a money market account, which is a savings account that typically requires a higher minimum deposit but offers a more competitive interest rate, online banks are the way to go. MoneyRates found they carried a 0.661% yield on money market accounts –– four times higher than the nationwide average of 0.154%.
“People are understandably upset that the continued decline in deposit rates is robbing them of income, and robbing their savings of purchasing power,” Richard Barrington, a senior financial analyst for MoneyRates.com, said.
“For many people though, there is an opportunity to raise their savings and money market rates just by shopping around.”
If you do most of your banking online and at ATMs anyway, these high savings rates signal that it might be a good time to ditch the teller windows for your tablet. But Barrington does advise keeping a few things in mind before switching your savings to an online bank. For one, make sure the bank’s website has top-notch security features. And if you’re going to carry over your checking account as well, check the availability of the bank’s ATMs in your area.
Here’s MoneyRates.com’s list of the banks with the highest savings account rates:
1. Ally Bank — 0.903%
2. American Express Bank – 0.878%
3. Sallie Mae Bank — 0.871%
4. Discover Bank and GE Capital Bank — both at 0.800%
5. EverBank — 0.760%
6. Capital One 360 — 0.750%
7. Mile High Banks — 0.650%
8. Capital One Bank and Zions Bank — both at 0.500%
And here’s the list of banks with the highest money market account rates:
1. Sallie Mae Bank — 0.993%
2. Ally Bank — 0.903%
3. GE Capital Bank — 0.800%
4. EverBank and Nationwide Bank — both at 0.760%
5. Discover Bank — 0.700%
6. Mile High Banks — 0.680%
7. AIG Bank — 0.635%
8. First Mariner Bank, OneWest Bank and Zions Bank — all at 0.500%