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Most people put money in a savings account, but did you know that with an average interest rate below 0.1%, plus monthly maintenance fees, traditional banks fall way behind the rate of inflation, losing you money as it devalues over time.
CIT Bank is an high interest online only bank that gives its patron's an average of 1.30% APY on their savings. The bank has no minimums and is 100% FDIC insured up to the standard $250,000 per account.
Online banks are an excellent solution to this problem.
Hence, in this article we’ll discover how does an online savings account work and how can you find the best online savings account for you.
What Is An Online Bank?
Online banks are regular banks that you can only access through the internet. They don’t have physical branches like traditional banks, but this provides account holders with a few advantages.
For example, online banks don’t have the high overhead of traditional banks. They don’t need to pay for physical locations, staff, or other branch-related expenses.
So these overhead savings are usually passed on to the customer, often resulting in lower banking fees and higher interest rates than traditional banks.
How Does An Online Savings Account Work?
Apart from not being able to walk into a branch to collect your savings or deposit cash, online savings accounts work exactly like traditional ones.
Even the ones that don’t have their own ATMs partner up with ATM operators, so you can access your money in thousands of locations for no fee.
Moreover, you can deposit checks through the app, or simply transfer money from any account. It’s all just a tap away on your phone.
The best part is that the average online savings account interest rate is usually higher than that of traditional banks.
Are Online Savings Accounts Safe?
As long as the online bank is insured by the FDIC, online savings accounts are as safe as it gets.
For clarification, FDIC, or Federal Deposit Insurance Corporation, insures bank deposits for up to $250,000 per bank account.
Ever since it was established in 1933, no one has lost a dime of insured funds as a result of a bank failure.
So if it’s FDIC-insured, it’s 100% safe.
Things To Do Before Opening An Online Savings Account
Online bank accounts can be a safe and cost-effective place to store your savings.
If you’ve never opened an online account, though, you might wonder if online banks are safe and how to go about choosing the best one for your needs.
The five steps below walk you through what to look for when choosing your online bank.
Step 1. Check Their Reputation
We’re talking about your savings, so you have to ensure the online bank you’re going to keep them in has a pristine reputation.
The internet can be a shady place and you don’t want to end up depositing your savings into a scam bank.
Review companies such as Bankrate, GoBanking Rates, and Motley Fool’s The Ascent are a good place to start your research and check what their customers think of them.
Step 2. Look For Zero Monthly Maintenance Fees
You might be surprised to hear that some banks charge maintenance fees and they’re pretty good at hiding it.
Bank fees can add up, and the last thing you want to do is add more expense to your savings than earn interest.
What you need to look for is an online bank that offers free savings accounts with no monthly or any type of maintenance fees!
Step 3. Find The Best Interest Rates
The one question you need to ask when looking to open an online savings account is how much interest will you actually earn.
Inflation typically grows about 2-3% a year, some years even higher. That eats away are the value of your money over time.
And in 2022, the average inflation rate hit almost 10% – meaning with most banks, your savings is just sitting there, losing value day after day.
That’s why it’s essential to save strategically: Save an emergency fund, 6-months' worth of expenses, and then invest the rest in something that’ll bring you more money in return.
For example, CIT Bank offers up to 1.20% APY on their Savings Connect account which is significantly higher than the national 0.1% average.
Step 4. Find The Best Terms
Check the terms of the online savings account to see if there are any requirements to earn the best interest rates.
It’s not unusual for banks to require a minimum balance or regular monthly deposits in order to receive the highest interest rates and keep your account free of monthly maintenance fees.
Make sure you understand all the savings account terms and requirements before choosing your online bank.
5. See Who Offers An Easy Access
It’s imperative to have easy and immediate access to your savings. An emergency might arise at any given moment, and you should be able to withdraw your savings hassle-free.
While some online banks have branches, most of them don’t. Similarly, a good portion of online banks don’t have ATMs.
In the same manner, look for a bank that offers a user-friendly app or online portal where you can quickly and easily access your information and make transactions.
How To Open An Online Savings Account
Once you’ve found a bank that you trust, opening your new savings account is easy. And compared to traditional banks, you don’t have to waste time going to their branch.
In most cases, you can start, pause, and return to a savings account application at your convenience, and the bank will save the information you entered for up to 30 days.
So instead of starting all over, the ability to save, exit, and return to the application gives you the flexibility to gather information or make a decision before opening your account.
Speaking of decisions, you can choose between an individual or joint savings account.
To fill out your bank application, you’ll usually need the following information:
- Full name
- Date of birth
- Social Security Number
- Citizenship status
- Mother’s maiden name
- Primary home address
- Valid phone number
- Valid email address
Once you’ve filled out your personal and contact information, you’ll typically answer a couple of questions about your employment status, such as:
- What is your occupation?
- Who is your employer?
- What’s your job title?
You can expect to spend about 5 – 10 minutes opening an online savings account.
Once you complete your application, you’ll finish up with a few final steps:
- Review the information you entered
- Review the account agreements
- Verify your identity
- Fund your account
In most cases, you can fund your account with $100 or less.
Opening An Online Savings Account – The Verdict
Traditional banks can make you broke with their monthly fees and outrageously low-interest rates.
Consider opening a savings account with an online bank to cut the costs and earn better interest on your savings funds.
CIT Bank is a great option since the bank is FDIC insured and offers customers zero minimums, and even lower fees than a traditional bank.
So not not only will you be earning more on your savings, you'll slowly be beating inflation, too!
Always be sure to do your due diligence before you choose an online bank for your savings, checking trusted online sources for reviews.
Remember, this is your savings we're talking about – so, while your savings won't make you wealthy, it's still an important part of your finances.
Make sure its all all to speed by choosing the best online bank for your savings in 2022!
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*FDIC Insured. Conditions Apply.