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To me, it’s a no-brainer to utilize online banking account services. It’s just so easy and convenient. I don’t quite understand why everyone doesn’t take advantage. My parents, for instance, still walk into a bank to deposit checks and withdraw cash from their account. Meanwhile, I keep trying to encourage them that online banking is the way to go (I hope they are reading this..).
The last time I walked into a bank was almost ten years ago. At that time, I needed to get a certified check to buy my beautiful used metallic blue Honda Prelude during a private-party sale. If you’re a regular reader of the blog, you know what happened with the Prelude. 🙁
Instead of writing dozens of checks and spending extra money on postage, I can thank technology for allowing me to automate almost every single bill. I try to use my credit card (yay cash back!) to pay for as many bills as possible, and for the remainder, I utilize my checking account.
Online Bank Account
The current yield on the average checking account at a physical bank is 0.05%. Ally bank offers an online checking account yielding 1.00%. The difference between these two accounts is astronomical. For instance if there is $10,000 sitting in the checking account at a local bank, the annual yield is $5. In comparison, the yield at Ally bank would be $100. Where else can you get twenty times the return on your money by making a simple change in where your money is held?
In terms of the emergency savings account, Dave Ramsey highly recommends a money market account. Make sure you check the interest rate that the brokerage firm is offering. It can vary wildly compared to online banks and even some brick and mortar banks. I typically highly discourage these types of money market accounts.
I took the plunge into an online bank account around five years ago. I know I was a little late to the party. I didn’t really have extra funds to put into an online account at that point. At that point, I was intently paying off my mortgage. Anyways, my first online bank account was through ING Direct. However, when they were sold to Capital One 360, disappointingly they lowered in the interest rate from 1.00% to 0.75%. To me, this was a big deal. If I have $10,000 in my account, the difference between $75 and $100 is 33%. You might have expected the difference to be 25%, but it’s not. When your account goes down by 25%, in order to make it go back up, it has to increase by 33%.
So with that said, I’m sure Capital One 360 thought that most people wouldn’t care enough to switch bank accounts. But for me, I had some time to spare one day and decided for $25, that it was worth my time. However, depending on the amount of cash in your account, it may not make sense. With the rise of online bank accounts, I encourage you to look around to see if it makes sense for you.
Do you have an online bank account? Have you experienced any problems compared to a traditional brick and mortar bank? Share your thoughts below.