Opening your first bank account used to be a rite of passage. It normally involved going to the local neighborhood branch to sign up for a standard checking account and, in most cases, an accompanying savings account. From there, you were on the path to financial independence as a young adult.
While physical banks are still quite prominent, nowadays, the options available for securing money have expanded since the “days of personal finance yore.” Specifically for savings accounts, the evolution of online banking has changed the way people stash their funds, with web-centric banks and credit unions offering easy-to-access accounts with competitive interest rates.
Whether saving for an emergency fund (which typically covers at least three months of salary) or another intermediate-term expense (funding a vacation, a big purchase), applying for an online savings account can be quite advantageous. It all depends on choosing the account that best meets your financial needs.
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The main reason to open any type of savings account is to earn interest, and the best way to compare one option to another is by looking at the annual percentage yield (APY). The APY is the percentage of compounded interest an account holder will earn on a yearly basis. Whereas compounded interest (i.e., interest on interest) works against you with credit card debt, it works to your advantage with a savings account.
While the national APY average is 0.09%, that number is heavily weighed down by traditional, brick-and-mortar banks. Online savings account providers are not affected by the same overhead costs as physical banks, so they are able to offer better APYs, as high as 1.9%. APYs usually function as variable interest, which means they can go up or down based on the Federal Reserve, but they are still 20 times higher online compared to the rates offered by traditional banks.
Minimum Balance Requirements
Another thing to consider when comparing online savings accounts is whether there are any minimum balance requirements. There are usually two types of provisions: a minimum balance to earn APY, and a minimum balance to avoid fees. Some online savings accounts may have a lofty minimum balance amount to earn APY (as high as $10,000), but they tend to offer the most competitive APY rates.
Minimum balance thresholds to avoid fees can range from $1 to $100, so it’s important to know these conditions when choosing an account. While some applicants rather not deal with balance requirements, those depositing large amounts may be incentivized by high APYs, as they will get the most bang for their buck.
Finally, as with all things digital, accessibility is another boon of online savings accounts. With most providers, users have secure 24-7 access to their account, and are also able to perform online transfers to and from a linked external account. Some providers also offer direct deposit, which allows people to set up monthly installments into their savings account.
There are plenty of ways to save money. Opening an high-yield online savings account is a great way to set up an emergency fund or save for a big expense, while making your money work for you. With Fiona, applicants can get matched with personalized online savings accounts, whether they want to deposit $1 or $10,000.