Pragmatic Finance

Online savings accounts are a great way to save money with a good and guaranteed return while having excellent liquidity. As they have increased in popularity there are more and more companies jumping into the competition. The big question is which one is best? Although some people only really consider the interest rate paid, there are many other important features and considerations to look at. I have many of the popular ones and plan to review all of them. Before I do I think it’s a good idea to write down the important features to consider when choosing one. And of course my opinion on how important they are.

Interest Rates

The current interest rate is one of the most important factors in choosing an account because this determines how much money you will earn. However, it’s not always wise to simply choose the one that just raised their rates to the highest APY, especially when many companies will raise rates a week or two after another company does in order to stay competitive. Therefore, it’s also important to consider the history of the company in keeping their interest rates of their online savings account near the top. If they constantly keep their rates competitive then they are a safer bet if you want to stay with one account. The history of their rates is probably one of the most important considerations.

Another point is when the interest is compounded and credited. To get around worrying about this it’s best to simply look at the APY and not the APR. However, this could be important if you are going to close an account as you might not receive interest you had accumulated but had not been distributed to you.

Reliability

All accounts you consider should be FDIC insured. This guarantees that you will not lose your money, up to 100k, if the bank went under. Although that scenario is unlikely, being FDIC insured is one the benefits to an online savings account over other investments such as a money market mutual fund.

Since all of your transactions will be done online having a reliable website is a necessity. Most of the sites have been very good about this so it’s less of a concern. However, if an account did have this problem consistently it would definitely be one to avoid.

You could also look at how safe the bank is according to Bankrate.com. I tend to not consider this. As long as the account is FDIC insured I won’t lose my money if it went under. If that occurred it would most likely get sold anyway and I would have to reevaluate the account features again if they changed under new ownership.

Opening the account

A low minimum opening deposit is very important, especially for those new to online savings accounts that may be weary of doing everything online. A low minimum also will allow you to try out the account without tying up a lot of money in case you do not like it. The length and difficulty of opening could also be a factor. Some of the longer processes can be quite annoying, especially when you have to be mailed many separate items before you can access your account and the money in it.

Transferring Funds, ACH, and linking accounts

Most accounts allow you transfer funds in or out electronically by ACH. However, the time it takes for these transfers to complete can vary anywhere from one business day to 3 or 4. The accounts you transfer to have to be verified first. This is normally accomplished either by deposit of trial deposits or by sending in a voided check. I greatly prefer the former to link accounts as this allows the linking of non-checking accounts such as other money market and online savings accounts. Getting some free change is never a bad thing either.

Some banks also place daily or monthly limits on the amount you can transfer out. This could create a problem if you have significant savings and needed to move funds quickly.

Although they are designed for savings, sometimes emergencies happen. You might want to look at how soon you can pull your money out after you deposit it. This is sometimes longer when you first open the account.

Ease of Use

Having a friendly user interface and website is a great feature. I really prefer it to be intuitive and easy to figure out how to use the site. This allows me to avoid having to call customer service. Speaking of which, customer service is something else to consider. I have not had to much for online savings accounts but having an easy way to contact and find out information is a must.

Minimum Balances

A low minimum balance is another must have, especially if you are just starting and have not saved up a significant amount of money. This allows you to keep the account open if you want to try others out or chase the highest current rate available. I have pretty much ignored accounts without a low minimum balance as I have done both of those. Going under the minimum will incur fees that can erase the interest you’ve earned.

Other Features

Some allow you to get an atm card to give you easy access to cash. Having a linked checking account with the same bank where you can transfer funds instantly is also very useful, especially since most do not have check writing capability. You may also want to take advantage of billpay with a linked checking account. While I used to consider these features extremely important I have found that I rarely utilize them. I tend to buy use credit cards for every possible purchase and try to pay them directly by pulling via ach from the credit card website. Still, for many these features could be very useful.

Account opening bonuses are great, especially for someone new to the game. However, I tend to view them separately, as deals and promotions, and not as reasons to keep the account as my permanent savings. Although they are a great excuse to try the accounts out. Some also allow you to purchase cds or other financial products. Again I tend to view that with little importance. If I want one of those products I will search out the best deal not just what is easily accessible.

I would say overall I feel interest rates, account linking, and ach transfer times are the most important to me.

What features do you consider most important to choosing your online savings account? Did I miss anything?