How a couple switched to an online savings account
If you’re considering making the leap to online banking, here’s a reason to do so now: A recent Federal Reserve rate hike could prompt banks to offer their customers higher interest rates on their savings by. 2019. Here, a man accompanies us as to why he and his wife decided to take the plunge with a high yield online savings account.
Paul, 33, writes tax regulations for a California government agency. (Due to the sensitive nature of his previous work as a tax collector, he prefers not to disclose his last name.) After selling a rental property in November, he and his wife, Jocelyn, 32, decided to look for a good one. place to park the product. They decided that a high yield savings account at an online bank would be their best bet for high returns on their money.
The objectives: a collegial fund and diversification
The family’s savings goals are a bit nebulous at the moment, says Paul, but with a 2-year-old on the scene and the possibility of more children in the future, he and Jocelyn want to have some savings for the family. university and diversify where they keep their money. As government employees, Paul and Jocelyn use a local credit union for their daily checking accounts.
“In addition to our checks and savings, we have a mutual fund, a retirement account, and stocks that we own. I’m a fan of not putting all my eggs in one basket, ”says Paul.
Why online banks were appealing
“It’s as simple as: I wanted to make more money with my money,” says Paul. “I wanted something safe, reliable and less open to market fluctuations, as opposed to a money market account. I also didn’t want to have to worry about locking my money in a deposit.
Online banks are generally able to offer higher interest rates than traditional banks because they don’t have to pay to maintain branches. An annual percentage return, or APY, of 0.01% – a typical rate at a traditional bank – compared to the 2% or more currently available at an online bank may not seem like much. But over the years, it can mean a difference of thousands of dollars as your money collects compound interest.
Suppose you set aside a $ 10,000 windfall and added $ 100 per month to a bank account with an APY of 0.01% for 10 years. With compound interest, you will only earn $ 17. In an account with an APY of 2%, however, that same money will have earned more than $ 3,500 in interest. This appeal, combined with ever-improving technology for online customer service, has made online banking increasingly popular.
A compound interest calculator can show how much your savings could earn in this type of account.
But first, a few considerations
Paul and Jocelyn had some initial concerns about online banking.
“I’m generally more wary of apps, and hacks make me nervous,” says Paul.
When researching online banking, he not only looked at a bank’s website, but also looked it up at the Better Business Bureau website, verified that he was insured by Federal Deposit Insurance Corp. .
Pull the trigger on an online account
After doing some research online, Paul chose CIT Bank, an online-only financial institution that currently offers an above-average interest rate of 2.45% to customers with a balance of $ 25,000 or who are depositing. $ 100 or more in their account each month.
Paul says he’s not necessarily a brand loyalist, however; like many interest rate optimizers, he says he plans to go where a given bank will give him the best return on his money. He looks beyond promotional savings account bonus offers – many of which come with conditions, such as a commitment to stay with that bank for a period of time – in favor of more flexible arrangements that offer better long-term performance.
But for now, Paul plans to let his money do the work for him and his wife in their new online account.
Should we change?
Online banking has its drawbacks for some customers, especially those who enjoy face-to-face interactions with service representatives or who are not as comfortable with the idea of using mobile technology to manage their business. silver.
But for clients willing to take the plunge, the difference in long-term returns from a high-yielding interest rate may be worth changing.