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Increase Your Savings Rates with Online Savings Accounts

Barbara Marquand | guest writer for GoTalkMoney

With savings account yields at many big-name brick-and-mortar banks at a scant fraction of one percent, your return on investment is little better than if you had kept your money in a piggy bank at home.

It's little wonder then that a growing number of savvy investors are turning to online savings accounts. Interest rates aren't as rich as a couple of years ago when online savings rates topped 5%, but they're still several times what you'd get at many traditional big-name banks.

As of mid-February, online banks like Ally, FNBO Direct, Bank of Internet, and ING Direct were offering 1.2% to 1.49% annual percentage yields on savings accounts.

Online Savings Accounts for Short-Term Savings

For long-term investments, you'll want vehicles with better yield potential, such as mutual funds, bonds, or a certificates of deposit. Online savings accounts are good for short-term, liquid investments, such as money for emergencies and short-range goals like car down payments or vacations.

Opening an online account usually takes 15 minutes or less, and, of course you can do it right from your computer at home. Many of the accounts have no minimum deposit requirements and can be opened with $1. To get the account started, you simply provide the routing and account number of another bank account that allows electronic transfers, so money can be funneled into the new online account. Many online banks also allow you to open more than one account, so you can have a handful of free online savings accounts with the same institution, each account for a different purpose -- one for vacations, one for home improvements, and one for holiday gifts, for instance.

As you shop around for an online savings account, consider these six factors:

1. Bank Safety

Make sure the financial institution is FDIC insured, and check to see if it's a subsidiary of another bank. Some online banks are owned by brick-and-mortar financial institutions. In that case, your combined deposits would need to be within the FDIC limit -- $250,000 per person, per financial institution.

2. Interest Rates

Research online savings account rates to get the most bang for your buck.

3. Restrictions

What do you need to do to get those great savings rates? See if a minimum balance is required and if there are limits on any services, such as the number of transactions you can make each statement period.

4. Savings Account Fees

Many online banks advertise no monthly fees for savings accounts, but if you look at their account disclosure statements, you'll see there are fees for special instances or services, such as leaving the account dormant for a month, exceeding a certain number of transactions per month, getting next-day access to deposits, or using ATMs outside the network. Think about your needs, and make sure extra fees won't nickel and dime away yields.

5. Access to your Cash

How easy will it be to get your money? Not all online savings accounts accept deposits through ATMs, so when you have a paper check to deposit, you have to snail mail it to the institution and wait several days before it's credited to your account. You also often have to wait a couple of days for electronic transfers to be credited. At some online institutions, you can get an ATM card good for both an online savings and online checking account. Check the size of the ATM network and whether machine locations are convenient for you.

6. Savings Account Customer Service

How easy is it to get hold of a real live human being if you need help, and when is customer service open. Is there 24/7 access, or is customer service limited to traditional business hours?

These six considerations are all part of finding the online savings and checking accounts that best meet your needs.

Disclaimer:This content is not provided or commissioned by American Express. Opinions expressed here are author's alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.

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