Interest rates might feel like an especially granular concern, but when you're trying to save (whether it's for your emergency fund or a long-term goal like a house), every cent really does count. Which is why you should be doing a little shopping for a bank that offers the best annual percentage yield (APY). Online banks can be a good option to explore.
It's easier than ever to comparison shop, thanks to sites like Nerdwallet or Bankrate. Both allow people to sort among online banking options, according to the parameters that matter to them, whether that be APY or a minimum balance. Plus, unlike investing in the stock market (which is generally a better place to put your money after you've tackled more immediate concerns), utilizing an online bank doesn't require you to be in "perfect" financial shape.
"There are a number of online banks that are federally insured," explains Greg McBride, the chief financial analyst at Bankrate, "and there are a number that don’t have a minimum deposit."
As of mid-August, the highest APY available for online banks is 1.4% — far greater than the average national rate for savings accounts of 0.06%. (Imagine if you have a $1,000 in savings. Your monthly interest accrued at 1.4% is $14 compared to $0.06. Not a negligible difference.) There are also accounts that require you to have no minimum balance and won't hit you with unexpected fees.
One important thing to consider is that your online account probably won't replace your traditional checking account. "There are limits on how many withdrawals you can make from the account each month, so you can’t use it as a checking account, but the money is accessible if you need it in a pinch," McBride says. Federal regulations limit the number of withdrawals from online banks to six times per statement cycle. Go beyond that, and you'll be subject to a fee, for example, $10 per transaction at places like Ally Bank.
But that's not necessarily a bad thing if you have a hard time saving each month and find yourself transferring money back into your checking account when your funds run low. Set up an automatic withdrawal (bi-weekly or monthly) to the online savings account and then pretend that money doesn't even exist. Without a debit card linked to the account, it makes it more difficult to access, but you can get it if you do run into a financial emergency.