I started banking with my current bank almost 30 years ago. I chose NCNB because they had a branch a short walk from my dorm room. As a college freshman, proximity and the fact that they were willing to give me a credit card was about all that mattered. NCNB has a new name and has evolved to become one of the biggest banks in the country. My wife, Crystal, and I stay with them for several reasons. Their online banking offering is easy and intuitive, we have the ability to deposits checks on our phones and there’s always an ATM nearby should we need one. Add the fact that it can be a real pain to switch banks and we’ll probably be there a while.
With that said, we did make a change to our banking setup several years ago. We left our checking account where it was but moved the money in our savings account to a different bank. One with no local service, no branches and no ATMs. It was an online only bank and we simply opened our new savings account via their website, linked it to our checking account at “NCNB” and transferred the money. Back then it did feel a little weird but these days making such a move is very commonplace. Why did we decide to make the change?
Big monster mega banks, as Clark Howard likes to call them, do a lot of things very well. They offer great technology and they’re very convenient. However, one of the things they typically don’t do well is pay interest on their customer’s savings accounts. In fact, according to the FDIC, the average interest rate on a savings account at a large regional bank is currently .01%. Pretty paltry compared to the 2% rate you might get at an online bank or credit union. Maybe that doesn’t sound super exciting but if you transferred a balance of $35,000 from a savings account at a traditional bank to an account at an online bank you’d earn an additional $670 a year in interest. Check out this post I wrote about using small(er) amounts of money to increase happiness. Still not excited? What about this? Earn that additional interest for 25 years and let it compound in your savings account and you’d have $21,535 more to spend on something fun.
There are a few potential drawbacks to changing to an online bank. As I mentioned, they don’t offer branch locations that you can walk into and it can take a day or two to transfer money from your online savings account to your checking account so you can spend it. You might also be limited to 10 or so transfers per month without incurring a fee. It’s also good to make sure that your current bank doesn’t require you to keep a certain savings account balance to maintain your relationship features – such as free checking. These potential drawbacks haven’t been an issue for Crystal and me but if you think they could be for you then you might check out a local credit union. They typically offer branch locations and higher savings account interest rates as well.
When searching for an online bank , first and foremost you want to ensure that your new savings account will be covered by FDIC deposit insurance. You also want to make sure the bank offers convenient mobile and online services that will make your banking experience as easy as possible Here’s a list of online banks to give you an idea of where to begin your search.
Great financial planning is really the process of making good financial decisions again and again over a long period of time. Make enough of them and they start to compound on each other and you end up dramatically improving your financial well being – and therefore your life! Whether this is good decision #1 or #100 we’re here to help. What do you think? Are you ready to earn more on your savings?