Now that I’ve got this blog set up, it is time to start sharing some information! I’ve got a ton of topics to write about but to get started, I thought I’d discuss one of the simplest, yet most effective things you can do to start keeping more of your money.
The topic I want to start out with is online banking, specifically online checking and savings accounts. An online account is a bank account that managed and funded exclusively on the Internet. By eliminating paperwork and reducing overhead costs, that are typically associated with a standard brick and mortar bank, online banks are able to pass the savings onto the customer in form of higher interest rates.
For example, a savings account at your local brick and mortar bank typically pays less than 1 percent interest on your deposits. By moving your account online, you usually can get 6 – 10 times more than that. For example, say you keep $1,000 in your local savings account that pays 0.40% (a fairly standard rate). If you move that $1,000 to an online savings account, you could find a rate anywhere from 2% to 5% or even higher. Here is how the math works out on the $1,000 savings account example.
Traditional Savings Account paying 0.40% – $1,000 would generate $4.00 per year in interest.
Online Savings Account paying 4.0% – $1,000 would generate $40.00 per year in interest.
The more money you have in your savings account, the more dramatic the savings.
Most online accounts have the option to link to your local account so you can move money between the two freely and are FDIC insured. So if you don’t already have an online account, you could be missing out on a lot of free money in the form of extra interest on your deposits.
So how do you get started? Well there are a lot of online banks out there to choose from. A good reference site to look up the highest yielding online bank accounts is Bankrate.com. I personally use and recommend HSBC Direct. HSBC Direct was one of the first banks to offer an online savings account and has continually maintained rates near the top. I opened an account with them in May 2006 and have used them ever since and saved a lot of extra money.
Regardless of which bank you choose, keeping your extra cash in an online account is one simple and most effective ways to start saving some extra money.