It’s a move worth considering.
- Although savings account rates are rising, you’ll generally snag much higher returns in a different type of account.
- If you have money that needs to be in a savings account, it’s worth looking at an online bank.
If your goal is to earn the highest possible return on your money, then a brokerage account is a good place to invest it. But if you have money you need to safeguard and keep available for emergency situations, then a savings account is your best bet.
These days, savings account rates are starting to rise. That’s because the Federal Reserve has been implementing interest rate hikes, and while that’s made borrowing more expensive, it’s also helping banks pay more generously.
But if you’re going to keep your money in a savings account, financial guru Suze Orman says it could pay to choose an online bank over a brick-and-mortar bank. Here’s why.
The upside of using an online bank
If you’re used to physical banks, then transitioning to an online bank may feel funny at first. But Orman says it’s worth it to make that switch.
On her blog, she says, “Old-school banks are the last to pass along higher interest rates to savers.” And there’s a reason for that.
Brick-and-mortar banks cost a lot of money to operate. There’s the cost to rent out the location, utilities, and other overhead.
Online banks don’t bear those same costs, because there’s no physical space to have to pay for. As such, online banks are able to pass savings onto the people who bank with them. And so you’ll commonly find higher savings accounts rates when you put your money into an online bank.
Similarly, online banks commonly offer more generous CD rates than their brick-and-mortar counterparts. That’s important, because if you have a chunk of money you’re looking to lock away for a period of time, it’s important to get the best interest rate you can.
Not only do online banks generally pay higher interest than physical banks, but they commonly impose fewer fees — again, because they have fewer costs they’re trying to recoup. So all told, you could come out ahead financially by opening an online bank account.
What about the drawbacks of online banks?
Clearly, with an online bank, you won’t have the option to walk into a brick-and-mortar establishment and take a withdrawal, or speak to a bank representative in person. But many online banks have a network of ATMs you can access, so it pays to see what options you have.
Plus, many online banks offer great customer service. So while you may not be able to walk into a branch and get assistance, you can still access help over the phone or via live chat online.
Do some research
For many years, savings account interest rates were so low they were almost negligible. Now, they’re finally starting to climb, which means savers have an opportunity to earn more on their cash deposits.
If you have a chunk of cash you’re keeping in a savings account, it pays to take Orman’s advice and look at an online bank. But don’t just choose one at random. Instead, research different online banks, especially if you’re thinking of opening a CD. Putting in a little time could translate to more interest and a better banking experience overall.
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