They’re safe, and you can stash more cash and earn more interest
Online banks are giving traditional banks a run for their money. Interest rates at online banks are as much as four times higher than brick-and-mortar banks and credit unions, according to a survey by DepositAccounts.com, a blog that compares bank accounts across the nation.
The survey compared the annual percentage yield, or APY, of savings accounts at 6,278 brick-and-mortar banks, credit unions and online banks over one-year, five-year and 10-year periods. Internet banks consistently allowed savers to stash the most cash while earning more money on balances.
“Online banks are just as safe as brick-and-mortar banks, and they allow you to grow your money faster with no extra risks,” Ken Tumin, founder and editor of DepositAccounts, told USA TODAY.
Since January 2016, Internet bank APYs have increased by 29% — three times higher than the 9% increase at brick-and-mortar banks. Credit unions were even lower, with an average APY increase of only 2%.
That means if a customer invested $1,000 a year in an Internet bank, they could earn more than $8 by the end of the year, compared with less than $2 at physical banks — and the savings only increase the more money is in the account.
“The interest can really start to add up when you’re looking at your account as a whole,” says Chris Hogan, financial expert and author of the book
Without expenses such as payroll and building maintenance, online banks can afford higher interest rates. Internet banks, many of which are unknown, also offer customers attractive interest rates as a way to compete with betterknown banks.
Consumers also save by way of fewer fees, such as overdraft and maintenance fees. This is especially advantageous for people who carry smaller balances.
“It’s a better overall banking experience,” Hogan says.
Some banks to consider are Ally Bank, Synchrony Bank, Discover Bank, CIT Bank and Barclays Bank. As long as the bank is FDIC insured, Hogan says, its just as safe as other banks.
And customers are not only saving funds, but time as well since online banks eliminate commute times.
“I would never go into a bank,” says Kathryn Luttner of New York. Luttner made the transfer to Ally Bank in 2010 after growing frustrated with excessive fees on her Bank of America account.
And while credit union customers have been enjoying fewer fees for some time, Tumin says even credit unions don’t offer the higher interest rates on savings accounts. “If interest rates are your main concern, then Internet banks are the way to go if you want the most bang for your buck,” he says.
While consumers have the option of banking with more than one business and linking accounts, Tumin says one drawback could be the time it takes to transfer money from one bank to another, which can take up to four business days.
Luttner says she’s never had a problem with her online bank and is unaware of any fees.
“Ally Bank offers me a 1.15% APY, and Bank of America is 0.01%, so it was a no-brainer when I decided to switch banks,” she says. “If the interest rates were the same at all banks across the board that would be one thing. But if they’re different, then why not take more money?”
“If the interest rates were the same at all banks across the board that would be one thing. But if they’re different, then why not take more money?”