Do you have an online savings account? No? You do you know why you need one, right?
Don’t feel bad if your answer is “No.” Most people I meet don’t understand why online savings accounts are better than accounts with brick & mortar banks. Even some of my smartest, most rational friends don’t yet have an online savings account.
But it’s stupid not to have one.
There are three important reasons why you should have an online savings account: Interest, interest, and interest.
Online savings accounts typically make about 4-5% APY, versus about 0.5% at brick & mortar banks. Additionally, most are FDIC insured, which makes them as safe as regular savings accounts.
Let’s say you have $5,000 traipsing about in your brick & mortar savings account. It’s probably earning you about $25 per year. But a high-yield online savings account with a reasonable 4.5% interest rate makes you around $225 per year. The more you have saved up, the more you could be earning by opening an online account. At the $15,000 level, the difference is $600 per year.
An online savings account is one of the most convenient ways for a young professional to stash and grow an emergency fund. It’s a lot easier and less stressful than opening an IRA. (Not that you shouldn’t open an IRA, but you should probably have an emergency fund created first. Baby steps!)
And if you don’t have a savings account already, you might find that keeping your savings separate from your checking account has an added “out of sight, out of mind” benefit—it’s harder to spend money impulsively when it’s safely squirreled away.
If you’re still not convinced, you might be persuaded by the signup bonuses offered by the various e-banks. I made the easiest $150 of my life by opening an online savings account with Citi a few months ago.
So do some research. Ask around. And then open a damn online savings account. Your wealthy future self will thank me.
