The Internet has truly changed the way we manage our banking and investments. The 1990s brought about a proliferation of discount brokers; it challenged the bricks-and-mortar organizations of banks and allowed banking to be 24-7; Much of this has happened, however, without many understanding the full benefits afforded to online financial services. The population at large is only now catching up, trusting and establishing an online financial presence—beyond paying bills. But the surprising thing with this reluctance is that these services are established online in the first place to lower costs and fees so you can save money. With lower operating costs than retail banks, online banks can offer greater flexibility and higher interest rates.
Using direct or online banking to setup an online savings account (OSA) is a service that has grown in popularity. Many people are drawn to OSAs because they offer competitive high-yield returns compared to traditional banks, and given post-recession market volatility, cash is still seen as a safe investment. But the other advantage of OSAs is that they are a great place to keep your money in the short-term. This is important as you don’t want to stretch yourself too thin with your investments, and be unable to cover short-term costs like a mortgage, lease, etc… Often people are advised to have 8 months of savings readily available to cover costs in case you lose your job or have to take time off work. High-interest savings accounts, thus, offer a perfect place to park your money to cover immediate costs, while earning a competitive interest rate.
There are also potential perks of having your money in an OSA rather than a traditional bank or cash equivalent. For instance, OSAs don’t require a minimum balance, and usually have low or no fees for using their services. Your money is readily accessible and some online banks even offer free checkbooks. For banks that charge you a (higher) fee, you might also receive free interact, and bank-to-bank services. Starting an OSA at some banks is as easy as mailing them a check.
Of course there are a few downsides to online banking. First of all, the customer service is not always up to par with traditional banking. While security is taken seriously, you won’t always receive the same service as you would at a bricks-and-mortar operation. However, the point of an online bank is usually the fees and rates, not any additional services you receive (which ensures the low fees and competitive interest rates). Nevertheless, for many, this arrangement is perfectly acceptable, considering the ease, added savings, and high interest rates you will generally receive. Overall, an OSA is a great instrument to look at for your financial arsenal in managing your savings and investments.