Online Savings Account

You have probably noticed that if you have a traditional savings account with a regular bank, you are not earning much interest. Indeed, many regular online savings accounts have annual percentage yields of less than one percent. You can quadruple your yield on a savings account simply by switching to an online savings account.

Advantages of an online savings account

There are many advantages to having an online savings account. The biggest advantage is having a yield of between 4.5 and 5 percent on your money. This is a much better return than your traditional savings account. And, depending on your other investments, 5 percent really isn't too far behind yields on value stocks, bonds and money market investments.

Another advantage is the fact that your money is a little bit harder to get at. It's still liquid, as a savings account should be, but you still have to wait a couple days for money transfers (although some banks offer ATM cards that give you access as soon as the money is in the account). This means that before you can withdraw from your online savings account, you need to stop and think about whether you need to dip into your savings.

Things to be aware of with an online savings account

You should be aware, though, that there are some things to be aware of when you open an online savings account. First of all, some banks (like Citi) automatically sign you up for a checking account. This is usually a regular checking account. I keep $10 in my Citi checking account and then use the online savings account for my, well, savings.

Also, realize that some banks do require a minimum. It usually isn't a terribly onerous minimum (between $200 and $500 on average), but it is required. If your online savings account is linked to a checking account, most banks will offer a combined minimum, so having $250 in each account counts as your $500 minimum.

Remember that when you apply for an online savings account, you will be providing personal information. It is important to make sure that you take the proper precautions and do things like activate your firewall and completely close out of your browser when you are done. Empty your cache as well.

An online savings account can be a great way to build your savings a little faster while still maintaining the liquidity of cash. However, you should realize that an online savings account does not take the place of other investments, such as retirement accounts.