- If you’re going to tuck your money away, you might as well make it work for you. Before the advent of the Internet that generally meant opening up a traditional savings account, but with more and more banks offering high-yielding online accounts, customers have new options to keep their funds liquid while still maximizing their returns. But how does one decide between an online account and a traditional savings account? <strong>BlackEnterprise.com</strong> breaks down the differences between the two.
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- <ul> <li><strong>INTEREST RATES</strong></li> <li><strong>Online Savings</strong> Since overhead is low, interest rates tend to hover well above the <a href="http://www.fdic.gov/regulations/resources/rates/index.html" target="_blank"><strong>national average</strong></a> of 15%. HSBC, American Express and Ally Bank are some of the institutions offering high-yielding accounts without fees or a minimum balance.</li> <li><strong>Traditional Savings</strong> Depending on the bank and the type of account, you may be more likely to get stuck with an interest rate closer to the <a href="http://www.fdic.gov/regulations/resources/rates/index.html" target="_blank"><strong>national average</strong></a>. Higher rates tend to be available for a minimum required initial deposit, or a required monthly balance, which can make it difficult to optimize savings for those just starting out.</li> </ul>
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- <ul> <li><strong>ACCESSIBILITY</strong></li> <li><strong>Online Savings</strong> Most, if not all, of your banking is done online but there’s usually ’round-the-clock customer service available via an 800 number for any assistance customers may require. Funds may also be accessible with an ATM card. While you may avoid fees from your bank for using an out-of-network ATM, the same may not apply when it comes to the actual institution providing the ATM, which can mean additional fees.</li> <li><strong>Traditional Savings</strong> Tellers and financial advisors are available to assist with any issues, which is a bonus for those who like doing business face-to-face. This also means customers must consider the location and hours of their preferred branch(es).</li> </ul>
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- <ul> <li><strong>MINIMUM BALANCE</strong></li> <li><strong>Online Savings</strong> With some online accounts offering more than 1.1% APY for new accounts with no monthly minimum requirement, the more money you have to save, the more options you have available.</li> <li><strong>Traditional Savings</strong> Traditional savings accounts offering higher than average interest rates tend to set a required minimum on the initial deposit that varies by bank. Consumers will be hard pressed to find an interest baring account nearing even 1% APY with an initial deposit less than $5,000 on any traditional savings account. So, if you’re starting from scratch, this is a less than ideal way to maximize savings.</li> </ul>
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- <ul> <li><strong>FEES</strong></li> <li><strong>Online Savings</strong> Most online accounts have no fees. But, as a general rule, be sure to read the fine print and ask questions.</li> <li><strong>Traditional Savings</strong> Fees may be accessed if minimum balances or average balances are not met, so it’s important to understand your savings habits. If you tend to withdraw large sums that will have your account nearing the minimum balance limit, you’ll end up paying for it later. When it comes to saving, you want to minimize the overhead.</li> </ul>
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- <ul> <li><strong>SAFETY</strong></li> <li><strong>Online Savings</strong> Most online accounts are <strong><a href="http://www.fdic.gov/" target="_blank">FDIC-insured</a></strong>. Also, many financial institutions offer secure online banking. However, with cybercrime and identity theft always a threat, there’s still a security risk with mobile and online banking.</li> <li><strong>Traditional Savings</strong> A traditional savings account is more likely than not FDIC-insured. Since your deposits are protected up to $250,000, you need not fear losing your money. But it’s important to keep a close eye on your account and any unusual activity.</li> </ul>
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- <ul> <li><strong>DEPOSITS</strong></li> <li><strong>Online Savings</strong> While direct deposits can be automatically made to online accounts, checks and cash will have to be deposited from an account at a brick-and-mortar institution and then transferred over, which can be an inconvenience at times. You’ll also need to connect your online savings account to a checking account based at a brick-and-mortar institution.</li> <li><strong>Traditional Savings</strong> Deposits can be made in-person, direct deposited and sometimes at ATMs, depending on the institution. The choice is literally yours.</li> </ul>
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