When comparing online accounts, here are the 5 most important things to think about.
1.Rate of Interest Paid (APY)
While savings and money market rates are always subject to change and can go down (or up) without notice, it generally makes sense to seek out the higher rate available. Rates on savings and money market accounts are expressed in terms of APY or annual percentage yield. The APY is likely to be higher than the actual interest rate on your monthly statement, but represents the actual annual return after accounting for monthly compounding.
If you seek to lock-in a rate, you should consider a certificate of deposit (CD) instead of, or in addition to, a savings or money market account. However, as a general proposition, a CD does not permit you to make withdrawals without penalty before maturity, and the bank may retain the right to completely deny your withdrawal request.
2. Minimum Balance Required to Earn APY / Required Initial Deposit
It is important to consider longer term whether you will be able to maintain the minimum balance over the life of your relationship with the bank as failure to do such may result in the absence of any interest and/or penalties. For example, CFG Bank and Purepoint Bank have $25,000 and $10,000 minimum balance requirements. Those having the cash on hand today to meet these requirements should consider whether they will continue to hold that much in cash into the foreseeable future. They may want to opt for a bank with no minimum balance requirement or with a lower minimum balance requirement.
The required initial deposit is technically different from the minimum balance required to earn APY, and for most major online banks (such as CIT Bank, Synchrony Bank, Marcus, Ally Bank and Barclays Bank), you can open an account without funding it immediately or by funding it with a very small amount.
3. Maintenance and Overdraft Fees
Maintenance fees (ongoing monthly, quarterly or annual fee to keep account privileges) are on the way out throughout the deposit world. While most major online banks – such as Marcus and Ally – now explicitly highlight the fact that they are entirely free or fees, some lesser-known names will often try to slide a fee in here or there.
4. Links to Other Bank and/or Brokerage Accounts, Transfer Limits and Transfer Speed
Does the account allow you to create multiple links between your funds in the new account and other banks and brokerages so that you can easily transfer money in and out of the account? Most major online banks have transfers down pretty well, but there are some new entrants that do not even enable you to transfer money in from external accounts (such Valley Direct) or that limit it so significantly that you are forced to transfer money in from an external account by either wire or ACH transfer. Additionally, there are differences in ACH transfer speeds. Goldman Sachs, CitizensAccess and Amex are recognized for offering immediate ACH transfers, whereas transfers to CIT Bank, Synchrony and many smaller banks can delay transfer of your money. A few banks will enable you to have multiple corresponding accounts at external banks and immediately transfer your cash to or from these accounts. For example, Purepoint enables you to maintain as many as ten external accounts (far more than most will need). Our partner site contains an extensive body of user reviews dating back many years, and many users highlight their experiences with transfer speeds.
5. Savings versus Money Market Accounts
At RatesAndInfo.com, we are often asked which is better to have a savings account or a money market account. The reality is that due to recent regulatory changes, there is simply no recognizable difference in most instances between the two. Both savings accounts and money market accounts can offer competitive rates, liquidity, and FDIC insurance up to $250,000 per individual per ownership class (NCUA insurance for credit unions).
Money market accounts are technically able to have certain check writing features, though not all online money market accounts offer these privileges.
Savings accounts can be established in the name of a personal trust, a feature that can be very attractive to those seeking to avoid probate of their assets. However, to date, CitizensAccess and Purepoint are the only two major banks enabling online savings accounts to be held in the name of a personal trust.