Sometime back, Henry @ Binary Dollar asked this money question: “What do you look for in an online bank account”? and invited responses from a few bloggers. Here is what I had to say about my views in choosing an online bank account.
1. High Interest Rates - This is the juicy part of online savings account; without the high interest rates, there is nothing attractive about them. Higher the better.
2. Easy of synchronization with other bank accounts - the online account should easily (without any hassle) communicate with my brick- and-mortar banks and also with other online savings accounts. In my experience, HSBC Direct is the best in this matter. Also transferring funds from the online bank to other banks must be a zero fee activity.
3. Absolutely zero fees - I don’t have any tolerance for “low†fees so I would look for one that has absolutely no fees at all. I *hate* banks that have $X fees if you balance falls below $Y. All banks we use (HSBC, ING Direct and Emigrant Direct) don’t have any such fees.
4. No minimums - This sort of ties in with “zero feesâ€. The account shouldn’t have any kind of a minimum balance requirement. Sometimes there is a “minimum account opening amountâ€. Ideally this should be $1, but anything below $250 is bearable.
5. A good *feel* for online security - Ok, I have to agree that the *feeling* is a bit vague, but if you visit the login page of an online bank account, it should feel solidly designed with sufficient security features. In my experience, ING Direct *feels* the safest followed by HSBC Direct and Emigrant Direct.
6. Goes without saying that any online savings account should be FDIC insured.
Those six points sort of summarized my thoughts, although I do have more things to add to them - important things, but not crucial.
7. Funds transfer times - I need to get a good feel for the time it takes to transfer funds to and from the online bank. Too much time is a bit of a discouragement. Of the three online accounts I have, HSBC tends to be the slowest. In fact if you straddle your HSBC funds transfer over a weekend, it might take as much as 5~6 days to get the funds where you want them. Fortunately, most banks tend to be consistent with these transfer delays - so you can plan your transfers accordingly. For those who keep track of their interest to the pennies, you must understand that the time lost in funds transfer delay is basically translating into lost interest income. Jonathan @ My Money Blog has an interesting experiment on this subject.
8. Recurring/Automatic Transfer facility - This wasn’t on my list in the past, but recently, I have been regularly using HSBC’s recurring transfer facility - it has sort of helped me save some money. 
If I open an account in future, I would definitely want such a facility.
9. ATM/Debit Card - Again, this is not crucial, but it helps to have this facility available so that you can access your funds in an emergency. Before HSBC offered it’s high yield savings account, we had our money in ING Direct - and ING didn’t have a ATM Card (or a debit card) with it’s online savings account. As a result, I used to transfer funds to our ING account with caution - after accounting for sufficient liquid cash in the brick and mortar bank for emergencies. However, once we got set up with HSBC Direct, and had access to it’s ATM card, our need for the liquid cash in the local bank has decreased - as a result we transfer more per month to our online savings account.
Now-a-days, ING issues debit cards with it’s online checking account - Electric Orange; and you can link Electric Orange to ING’s savings account - so basically you can have instant access to your savings account money through the debit card. That’s good.
As far as I know, Emigrant Direct doesn’t have any such facility. May be there is, but I don’t know about it.
10. Reviews - It’s a good idea to look for online reviews about certain unheard banks. Sometimes, the interest rates may be very good, but the whole process of opening an account and then operating it might be a big PITA. Probably, a bank with slightly lower interest rate might be a better choice in that case. The best way to find out about these things is to look for reviews from current customers and the easiest way to get reviews is to search for them on Google.
Before I let you go, here is something important.
If you are in the market for an online savings account, always read the find print carefully for hidden fees and charges. For example, look out for things like these:
- $3,000 minimum deposit to open account
- Minimum balances: $3,000 minimum daily balance or $5,000 average daily balance in account. $15 monthly service charge if balance requirements are not met
Those are the conditions for an online account (money market account) at New Dominion Bank which is boasting an interest rate of 5.07% (APY).
Updated: Click here for the current list of banks offering high interest savings accounts.
Btw, just to be clear, all links in this post are for information only - there are NO referral links in this post.
Feel free to share your thoughts on what you would look for in an online bank account.
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Don’t totally write off money market funds. If you have enough to overcome the minimum funds for opening, then you will can realize some significant tax savings over a high-yield savings account. Some of the money markets consist of Treasury and municipality bonds who’s dividends can be federal and state tax free. If you’re in a high tax bracket or in a state with high income taxes then this can push the yields to over 6% or 7%.
Most money markets have check writing privileges and do not have the 6 withdrawal limit.
Money market fund accounts are no FDIC insured, but it shouldn’t stop you. If your money market consists of mainly Treasury and municipal devices and they go under then the FDIC is going to go under too.
i second Anthony’s comments about MMA; however, they do tend to have higher requirements which negates the no minimums. since i have RIRA and stocks, i do not need to carry minimum in my MMA; however, i have to keep minimum in other investment, which is fine since RIRA covers the minimums.
for savings, i’ve gone with iGobanking at 5.30%. have used them for 6 months and am very pleased with them. have transferred monies in and out from various linked accounts w/o issues. dumped ING since ING is keeping at 4.5
In Canada the best online bank is President’s Choice. It is not only an online bank with zero fees, including free checks, and high interest, but also debit card and free access to point of sale and a large stable of ATM machines. Full review here.
Other potentially hidden piece of fine print:
1) Direct deposit required to avoid fees.
2) Account must remain open for x months.
I’ve also completely switched over to money market funds. (I keep a Citibank account open as the entry point for manual deposits.) At my 25/9.3 tax rate, 7-day CPYs are 5.64% for Vanguard Treasury and 5.74% for Vanguard CA Tax Exempt. Last month ago, it was 5.66% and 5.60% so there’s some rate fluctuation — hence, I keep a 50/50 mix of the two and split the difference.
In the 35%/9.3% bracket, Vanguard CA Tax Exempt would pay 5.58% to 6.77% depending on whether you itemize and/or are subject to AMT. Quite a bump over the typical 5-ish online savings account.
Great post! Also, don’t forget the power of word-of-mouth. In addition to bank websites, ask your friends and family about the services they use. A personal referral can be quite persuasive.
Check out etrade bank.
As for security, for some customers, they issue an RSA security key. It generates an unbreakable passcode that overlays on to your password every 60 seconds.
http://www.rsa.com/node.aspx?id=1156
so even if someone knows your password, they will need the code generator on your keychain to get access to your account.
I just recently had a slight problem with AmTrust Direct, I was sent a notice via postal mail that my MMS account had exceeded the permitted number of allowable transactions per cycle which in total is 6. By account agreement this 6 withdrawls consists of 3 AmTrust Direct initiated transfers out and 3 third party (initiated by a request from another institution) transfers out. I made all my requsets from insttutions outside of AmTrust. Wasn’t a problem and no fees were acessed but this is one example of fine print that needs to be read. I highly reccomend AmTrust and their 5.36% APY account.
Great post, it will surely help me to decide whether i should go for online banking or not.
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