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You stored your cash in a traditional since you
can remember. It was safer than hiding the money in your mattress.
Because the only banks logically accessible to you were within 20
miles of home, you really didn't take the time to even look at rates.
We all just accepted that a savings account with our local bank
was safe and really not worth much. Banks really owned their customers.
In the 1990s online banks came of age. In few clicks, you could
place your money in a bank 10,000 miles away just as easy as down
the street. To get your money banks started to compete on rates
like you would not believe. The entire market changed. The clients
now owned the bank.
While this is a simple explanation here are some major differences
between Online Savings Accounts vs. Traditional Savings Accounts:
1. Interest Rates
Rates of online savings accounts are 5-15 times higher than traditional
Savings Accounts on on average.
2. Security
FDIC insurance provides protection for your account in case the
bank cannot cover its accounts. Up to $100,000 per account holder.
This is true of both online and traditional banks. Identity theft
is a hot topic these days more and more people are having their
information stolen and sold. If you use your computer, you obviously
you are increasing your risk. If have to be honest though, if your
follow basic safety guidelines and practice good judgment online,
this is really a non-issue.
3. Customer Service
Traditional Banks usually provide great customer service. Even
if you do not go to the bank, you can usually get someone on the
phone during normal business hours. You cannot beat traditional
banks on this one. Online banks are built to use a little paper
and as much automation as possible. In most cases, you talk to someone
from a far off land on the telephone or via email only. While the
customer service of online banks is rather poor in comparison, it
usually achieves the same results.
4. Account Withdrawals
Actually withdrawals are one of the big draw backs of online bank.
Sometimes fees for ATM withdrawals can cancel out the interest rate
difference. Most online savings account work by linking to a checking
account. You transfer your money between the two accounts in order
to Deposit and Withdraw your money. If you are transferring money
using this method, you're usually without the money for about 3
business days. Remember every time you transfer money, you lose
3 days interest on that money. Traditional banks usually allow you
to make withdraws in person or via an ATM card. Online savings accounts
on the other hand don't allow for in person withdrawals. Many do
offer an ATM withdrawal. Right the now the most attractive features
are ATM rebates. Since there are fees for using an out-of-network
ATM, many banks are refunding all of those fees on a month basis.
If you use an ATM card often, ATM rebates may actually make an online
bank more attractive to you than a traditional bank.
5. Account Deposits
Traditional Banks allow you to deposit in the following ways:
-In person
-Via an ATM
-Mail
Online Banks offer much of the same ways to deposit:
-Via an ATM
-Mail
-Routed through another bank account (usually a linked checking
account.)
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