My Financial Money Map shows the different accounts we use as part of our financial plan; however, today, I would like to make the case for using an online savings account.

Online Savings Accounts (OSAs) have been out there for quite a while. According to Wikipedia, more than 8.5 million customers signed up for OSAs with leading U.S. banks in 2005 alone; however, they are still fairly new to some people.

In our case, it wasn’t until 2016 that we decided to do some research after hearing about it on the doughroller podcast. A simple Google search of “best online savings account” revealed several options to choose from. Ultimately, we decided to open an account with MySavingsDirect. At the time it was paying 1.05% APY making it the most competitive rate available in the market.

In general, going from a brick and mortar bank to an OSA was fairly easy. Once opened, we.transfered our emergency fund to MySavingsDirect and started enjoying the benefits of higher interest on our balance.

The Experience At MySavingsDirect

Overall, I can’t complain about the bank and the interest rate. The user interface wasn’t the prettiest but as long as they were paying a competitive rate life was good.

One thing all OSAs will tell you is the interest rate can be adjusted based on market conditions. Well, who would have thought that after a month, the rate would experience a decrease from 1.05% to 1.00% APY. 

We experienced a second drop just a few months later going from 1.00% to 0.85% APY. At that point, the future didn’t seem promising.

We decided to go back to the drawing board and start evaluating other options. Looking back it was obvious MySavingsDirect was offering the highest interest rate in the market to attract customers to then lower the rate. Their parent company is Emigrant Bank, and currently, they have another division called Dollar Savings Direct offering 1.50% APY. No way we’re falling for that one again.

The Switch To Ally Bank

During the course of our initial research, Ally Bank ranked 2nd on our list offering 1.00% APY. Needless to say, that 0.05% extra was not worth it.

Upon further investigation, we found Ally had one of the best savings accounts when it came to the overall digital experience. The website was easy to use, and its mobile app was compatible was pretty neat. It also offered real-time chat support and a 24/7 call center.

Setting up an account was extremely easy. We opened 2 checkings that earned 0.1% APY and 3 savings accounts earning 1.00%. After opening the accounts, we received a lot of stuff in the mail that included debit cards, checkbooks, and the typical paperwork you get when opening a bank account. 

Since making the switch, Ally has gradually increased its interest rate on its savings account from 1.00% up to 1.25% APY. This happens to be among the best on the market as of November of 2017. Below is a snapshot of our accounts.

Today, there are many options on the market and the competition is fierce. This is pushing all online banks to up their game to see who can get their hands on people’s money.

As far as I know, the highest number out there is 1.35% APY offered by CIT Bank and 1.30% APY by Synchrony and GS bank. As mentioned previously, dollar savings direct is offering 1.50% APY, but I suspect is just a strategy to attract money and then drop rates as was the case for MySavingsDirect.

With all these options, we’ve been tempted to leave Ally; however, their interface, customer service, and their on-going increases in rates have made it difficult for us to part ways.

We’re missing 0.05-0.1% or maybe more but we would hate to go through the hassle of opening an account at a different bank to then realize that Ally went ahead and increased rates as they’ve done in the past few months. Unless we see a significantly higher interest rate offered by a trustworthy institution, our plan is to keep enjoying our partnership with Ally bank.

The Advantages Of An OSA

OSAs are characterized by a higher interest rate compared to traditional savings accounts. The first table shows a comparison between interest rates for some popular institutions including those that offer OSAs.

The second graph is just an example that shows the result of saving $100,000 at each bank and the estimated annual return.

Many of these high-yield saving accounts don’t require a minimum balance at the time of opening nor charge maintenance fees. You can link your OSAs to multiple external accounts to manage fund transfers and using ATMs is also fee-less. This particular benefit along with external account management are the things we enjoy the most with Ally.

The Disadvantages of an OSA

We found it difficult to come up with cons for opening an online savings account. The list below is the best we were able to do.

• Some people complain about the difficulty of making deposits having no branches around. With options like Zelle, or mobile deposits with bank apps, there’s no excuse.
• If you choose an online-only savings account, you won’t be able to walk up to a teller to make a deposit or sit down with a personal banker to explore savings options. I get it, but who does this these days?
• Something else to consider is the timing for transfers. The process usually takes three (3) to five (5) days. If you don’t want to wait that long, an online-only account might not work for you.
• An online-only account doesn’t give you the opportunity to build a relationship with a banker.

Listen, just because you’re considering opening an OSA doesn’t mean you have to cancel all your other accounts in the future. Our accounts at Ally are complementary to other accounts we have. Yes some of them include a brick-and-mortar institution.

What Else Is Out There?

I was catching up on several posts about FinCon 2017 and for some reason, I ended up landing on the Financial Panther blog. I was reading Kevin’s take on the conference and noticed a post on a savings account paying 5% APY.

He wrote two (2) posts to describe what they are and how they work. Before you get overly excited, know it requires some effort but, in my opinion, it is worth taking a look. Follow the links and learn more about the strategy.

• Financial Panther: Netspend Account
• Financial Panther: Insight Card

Final Thoughts

• Consider opening an Online Savings Account especially for parking your emergency fund.
• We totally recommend Ally Bank; however, do your due diligence and choose an option that works for you.
• You can’t beat making 125x+ more on your money compared to a brick and mortar bank.
• Who cares about branches and relationships as long as you’re letting your money work smarter for you.
• You don’t have to make it an either-or. Just because you open an OSA doesn’t mean you have to close other accounts.
• I have already requested my Netspend and Insight cards to explore the 5% APY they advertise on their accounts.
• Stay tuned for an update to this post or a separate one about the Netspend and Insight experience.

What about you? do you have an OSA? if not, where do you park your emergency fund?  

Until next time … JJ