pameducation

I’m a huge fan on online banking. In fact, we opened our first online savings account with ING Direct over five years ago, and we haven’t looked back since.

Sure, we still have a local brick and mortar bank for convenience, but we keep the vast majority of our savings online. Why? Because online banks offer significantly higher interest rates than do their local competitors.

I’ve opened more than my fair share of accounts over the years, in part because I enjoy rate-chasing, and in part because I like reviewing them here on FCN. With that in mind, I wanted to talk a bit about what I look for when evaluating an online bank.

Interest Rates

One of the biggest factors that I consider when evaluating an online bank is their interest rate. While online savings rates can fluctuate dramatically over time (just look at the downward spiral we’ve experienced over the last few months), certain banks are consistently amongst the best (or worst) of breed.

For example, ING Direct is typically amongst the first to lower their rates and the last to raise them when the interest rate landscape changes. Thus, while they’re quite popular, they’re not at the bleeding edge rate-wise.

In contrast, banks like FNBO Direct, DollarSavingsDirect, and Everbank have consistently ranked near the top in terms of interest rates.

Bank Safety

Whenever I evaluate a new bank, I always check out their safety ratings.To be completely honest, I’m not sure why I bother because, as long as they have FDIC insurance, I’m perfectly happy putting my money there.

Case in point… I recently opened an account with DollarSavingsDirect. They have a 1-star Bankrate rating, but I’m still perfectly comfortable having money with them as long as we stay below the FDIC insurance limits.

Aside from bank stability, you also want to find one that is secure. The good news here is that most of the major online banks have fairly similar (and secure) login procedures, etc. Honestly, the biggest thing you can do to ensure the security of your money is to choose a strong password and then avoid falling for a phishing scheme.

Minimum Balance Requirements

Many online banks don’t have a minimum balance requirement, but some do. Fall below it, and your interest rate will likely tumble, and you might also find yourself subject to monthly fees. If you’re not in a position to keep a large amount of cash in your account on an ongoing basis, then be careful to choose one without a high minimum. WT Direct is an example of a bank with a relatively high balance requirement ($10,000 minimum).

Online Interface

I’m not terribly picky when it comes to bank interfaces. As long as the site is secure and functional, I’m pretty happy. That being said, some sites are certainly slicker than others. One of my favorites in this regard is our old standby, ING Direct. They not only have a very clean interface, but they make it dead easy to create subaccounts for different savings goals.

Other Account Types

If you want more than just a savings account, be sure to check what other account types your bank of choice offers, as well as your options for linking them together. For example, ING Direct now offers an online checking account that can be linked directly to your savings account. Taking this a step further, Everbank offers checking, savings, and money market accounts, as well as a wide range of CDs that can be purchased in a variety of currencies.

Customer Service

Customer service is sort of a funny thing when it comes to online banking. If all goes well, you’ll never need to interact with a real, live person. But if something goes wrong, you’ll likely want to get someone on the line. While many banks have 24 hour customer service lines, some don’t. If this is important to you, then be sure to check it out (and maybe call to test their hold times) before selecting a bank.

Another factor that I’ll lump in here with customer service is the time it takes to transfer money in and out of the bank. Some banks are quite good at this (e.g., ING Direct), consistently completing your transactions in two days, whereas others (e.g., HSBC Direct) drag their feet a bit and take a full three days. Not a huge deal, but something to consider if you’ll be shuffling money around on a regular basis.

ATM Access

This one has never really been an issue for us, as we keep enough money in our local bank to avoid needing regular ATM access to our savings. Nonetheless, it’s an important consideration for some customers. Beyond asking whether or not your bank of choice offers an ATM card, you also need to consider fees. Some, such as ING Direct, offer free ATM access via specific networks (Allpoint in the case of ING) whereas others do not.

Closing Thoughts

As with most consumer decisions, selecting the best online savings account is all about tradeoffs and finding a happy medium. What’s more important to you, interest rates or safety ratings? Online interface or minimum balance requirements? For us, the top two options are FNBO Direct and DollarSavingsDirect. The former excels in nearly every aspect, whereas the latter outperforms in terms of interest rate, but lags a bit in other areas.