The best online savings accounts offer high interest rates and great customer service. Savings accounts, particularly so-called “high-yield” savings accounts, are best for money you might need within a year. Any money that you don’t want to subject to the short-term risk and volatility in the stock market should be held safe in a savings account, earning as much interest as possible. Your emergency fund should primarily consist of money held in a high-yield savings account. “High-yield” is unfortunately a bit of a misnomer these days; a decade ago, interest rates were 4% and 5% among select savings accounts and money market accounts. Today, the best rates are all below 2% while a fair amount are still hovering around 1%, many rates are now dipping below the 1% mark. This trend will continue until banks need more cash from depositors.
Interest rates. Interest rates are important because money shouldn’t lose too much purchasing power. In a perfect world, interest rates offered by banks should beat inflation while preserving the balance without risk. Many banks are not now offering a savings option with interest rates high enough to meaningfully beat inflation, so if your savings is at a brick and mortar bank earning below 0.25% APY, choose one of the better options below.
Customer service. When evaluating customer service, there are two important factors to consider. The best banks offer all account maintenance and transfers through a professional, reliable, and easy-to-navigate website. Secondly, live customer service representatives should be knowledgeable, helpful, and available, although customers should have to deal with a representative infrequently if at all.
Based on my own experiences and reviews from other Consumerism Commentary readers, here are the most-recommended accounts for short-term savings. All of the listed interest rates are current as of February 2012, but they are subject to change by the banks. Although I have nine accounts listed below the table of rates, you don’t need to have accounts with that many different banks. Choose one that fits you the best.
First, here is a list of the latest interest rates. Following this table, I offer a few of my own observations and opinions about savings accounts from nine popular online banks.
American Express offers an online personal savings account from the company’s banking division that rivals the best banks. The account offers an interest rate of 0.90% APY.
Ally Bank was selected by Kiplinger Magazine as the best savings account for 2009. Formerly known as GMAC Bank, Ally Bank sports an interest rate of 0.84% APY as of January 22, 2012.
ING Direct offers no fees and no minimum balance requirement. ING Direct has a great website and I’ve never had any customer service problems. My favorite feature is the ability to split your account into several labeled sub-accounts. ING Direct offers a current interest rate of 0.80% APY.
Worth noting is that Capital One purchased ING Direct earlier this year, but even with an acquisition in progress, the bank recently won the Second Annual Plutus Award for Best Bank.
FNBO Direct offers no fees and no minimum balance requirement. Rated best online savings account for 2008 by Kiplinger Magazine, FNBO Direct is the online arm of First National Bank of Omaha. FNBO has an interest rate of 0.70% APY.
EverBank has a variety of products including a high yield checking account, a money market account, and world currency CDs, all with top-tier interest rates. Currently, Everbank’s money market account yields an interest rate of 0.76% APY and their Yield Pledge Checking Account for balances between $25,000 and $49,999 has an interest rate of 0.61% APY.
SmartyPig currently sports one of the better interest rates you can find online at 0.70% APY. In addition to the high interest rate, you can also convert your savings goals into gift cards and earn an additional bonus for each gift card conversion.
Sallie Mae is now offering a high-yield savings account boasting no fees and no minimum balance. The process to open a savings account takes less than ten minutes and the current interest rate is 0.85% APY.
HSBC Advance offers no fees and no minimum balance requirement. HSBC Advance (formerly HSBC Direct) entered the race with one of the highest interest rates ever available at 6% APY. Since then, HSBC Advance has continued to be towards the top of any list of online bank accounts. HSBC Advance has an interest rate of 0.80% APY.
What is your favorite online savings account? Share your thoughts in the comments below. Here are a few more banks to round out the selection.
- Capital One Bank is offering 0.70% APY no fees, APY for balances of $1,000 and above.
- Emigrant Direct is offering up to 0.60% APY no fees no minimums.
- DollarSavingsDirect is offering 0.70% APY no fees, minimum account balance $1,000.
For more, see this list of savings accounts interest rates. I have been tracking the rate changes for four years now, and this list gives you an idea of which banks have been consistently offering the highest interest rates.
Updated February 3, 2012 and originally published November 9, 2011. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @flexo on Twitter and visit our Facebook page for more updates.
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I can not believe what I am reading here. You are all talking about who has the best rates and who transfers money faster.
That is all good in good economic times but in these times you are only talking about one or two fractions of a percent from one good bank to another. I also see some are worried about minimum requirements to avoid fees.
Let’s start with the minimum to avoid fees. If you are in this category the money you earn on your account will be so insignificant that it really does not matter if you get 1.0% or 1.5%. Example if you need to keep even $5000 minimum you are only looking at between estimated $50 and $75 interest per year. Is the $25 difference worth the hours of research, you would do much better just finding the best rated bank that has the features you need and not stressing yourself out over $25.00. Even if you have $25,000 in your account you are only talking and estimated $125.00 a year difference. You can make more than this working a few extra hours on the side and not stress out about every penny.
That said, if you do have a big name brick and mortar bank paying say 0.1% or less yes it is worth going to an online bank that pays generally between 5 and 10 times more it may be worth it. But when talking .90%, 1.0%,1.1% etc unless you are loaded it is not worth your time to keep chasing the best rate.
If you are loaded your money is probably in other investments anyway any you only keep what you need for current times in your checking/savings accounts.
Chasing the best rate when banks are competing hard for customers may be a good thing. You could see big differences in rates but in these times you are just putting your self through stress you don’t need.
Let’s look one more thing. A while back I purchased some us savings bonds. I got a good rate on them. They were good to cash in when interest at banks were about 1% higher than the bonds pay. I could have cashed them in and gotten a 1% better rate chasing rates. I choose not to. Well guess what. My bonds still pay 4.5%. This is more than 3 times what I get over the other accounts and the tax is deferred until cashed in like stocks unlike paying tax on interest every year on your bank accounts. Everything pans out in the end.
Here’s a way to get an instant 10% rate through ING Direct …. Just open an account with $250 and they give you a $25 bonus. Easy.
What bonds?
If people want to “chase” the best rate, and learn a bit in the process, let them do that. You have your way, and apparently you had to learn what that was. Yea, I said LEARN. Sometimes we need to learn what is the best way for each one of us over time, and in the process we learn. What you think is trivial, might be trivial for you, but it might not be for someone who wants to research, and pick the account that they think is the best for them. If getting 1%, or whatever is the best rate, is important to someone, do not knock them. Let us all do what we want to do to learn and decide what is the best account for us. For some your approach might be the best, for others, they want to research and pick the best for their needs.
There’s almost no difference between all the “high-yield” banks out there. They are all roughly 1.00% APY, give or take 0.15%… I wish some of them would get more competitive now that the economy is starting to improve.
Hopefully CapitalOne will increase ING’s rate now that they’ve purchased them.
I was not surprised to receive the ING notice yesterday stating that ING will be sold to CapitalOne. Although, CapitalOne is very similar to large institutions like Chase, I would be surprised if CapitalOne’s rates will be higher than ING’s. My current Sony CapitalOne credit card does not have impressive rates. However, I would be happy if even a small increase in an APY would occur once my ING accounts transfer over to CapitalOne, but knowing CapitalOne I will not hold my breath.
In this type of sale, will the customers have a chance before the sale happens and the new rates go into affect to know what the new rates will be and all the other changes before we commit to going along to CapitalOne?
As far as “all the high-yield banks out there” there might be small differences between them, but even a difference of .15% is better then nothing. We are in a bad period in this area, but, I would much rather transfer my ING holdings to a 1.15% APY rather then an APY that is around .75%. Every little bit helps.
I am on board to hoping ING raises its rates soon. But in the meantime, I am taking as much advantage as I can of their $10 bonus for referring new accounts.
American Express also offers sub-accounts and a competitive interest rate like ING if someday you decide you’d like to escape Capital One’s clutches. Once you already have an account, just open another one and indicate that you already have an AmEx account. You can customize the account names through the customer service tab. I like ING’s interface better, but it’s no longer the only bank out there with sub-accounts.
Captial Ones rates have dropped to 1.01% APY as of 8/22/11.
SFGI Direct has had the best rate for two years straight. Some match their rate, but nobody beats them.
They’re not accepting new customers at the moment. :)
They are today. I have three on-line accounts and SFGI is currently the leader in rates at 1.01%. Granted, not much in today’s economy, but still better than 0.70% and 0.01% at some of the “big” name banks such as Chase.
My savings account is 1.15%. :D
Mind sharing? Which bank?
Hi. I’m looking to put our savings in one of these banks. Question: to me it’s important that the interest be paid monthly and reinvested, that is COMPOUNDED as I’m planning to leave the money for quite some time. I’ve been looking around and Ally does say it compounds monthly. What about the others, is there a way to find out?
Thanks you
I answered my own question. Never mind. BUT, using the American Express website as an example, not every online bank has a dandy FAQ to clarify this. With AmEx I had to go the round about route in their search window. Ok. It looks like they all compound monthly.
Hi Maria- I have had the discover bank savings account for a few years now and they pay interest monthly to be reinvested. They are also offering a $25 bonus on top of their 1% apy if you open an account by Dec 15th.
Maria, comparing quoted APY’s tells you all you need to know about compounding frequency and APR. Read any number of sources to brush up on the difference…
My apy is 1% and they are now offering a $25 bonus for signing up. They must have caught onto what amex is doing :)
Hi Matt K, thanks for answering. Well, we have our car insurance with AAA and I just noticed they’re also into this online banking business and they’re partnering with Discover. I’ll check it!
Hi everyone! Well, we started the process to open an account with AmEx first and we run into a glitch. Wondering if anyone has ever had this problem. My husband is an American citizen and I am a perfectly legal resident with green card, SSN, driver’s licence, tax filer, AARP card, AAA card, documented joint ownership of our home, no debts whatsoever, you name it. We have joint accounts at our local bank so we wanted a joint savings account but when it came to ME, Maria, the whole application process came to halt. AmEx said they’d send us a letter stating what else they wanted as proof of my ID. As I write, nothing has been received. Next, we started the same process with Ally, but before even trying to apply, and anticipating the same glitches, we “chatted” with someone to explain about ME and what would they need. The person was very helpful and didn’t see a problem but the application process also came to halt. The webpage “apologized” and asked us to phone them. We did and they asked (this is Ally) for a photocopy of my driver’s license, enlarged – after which they’d phone us. We sent it by fax immediately. They haven’t phoned us.
I understand that they would want to check our SSN’s against consumer reports and such, but I also explained to Ally (during the chat) that I never borrowed while here in the US, and that I use my husband’s credit card as secondary cc holder as we pool our earnings into our joint checking account. So it seems they can’t do a search on me by the usual methods they use, and are too lazy or can’t search through gov.agencies. AmEx asked me to ask SocSec for a letter proving I own the SSN they gave me. SocSec told me they don’t issue letters, that the SocSec card I have IS all the proof I should need. Ally didn’t ask for that, but I offered to send them a photocopy of my green card and SSN card and the person said it shouldn’t be necessary. Still, no response after we sent them the photocopy of my enlarged driver’s. Logically, and we even told both AmEx and Ally, that the IRS would be the perfect source to check as we file jointly and, tah-rah! there’s my SSN on the front page, common address etc. Frankly, I’m beginning to feel discriminated against, in a loop. Has anyone gone through this? Thanks for reading
I am sorry to read about your experience. Sometimes it can be tough when you don’t have a good credit history. However, please don’t be so quick to jump on the discriminated-against bandwagon.
Banks are entitled to be cautious.
Build your credit history, I am sure everything will work out in due time.
I tried opening an AmEx account. The process came to a complete halt when they tried to check my SSN number. At the time I changed my last name a couple weeks prior. I guess the systems weren’t upto date or something like that. When I talked to the customer service person I found her to be extremely rude, like I was trying pulling something over on her. Their only solution to this would have been to have Social Security send a note on official letterhead to prove my full name and SSN. I decided it wasn’t worth my effort to get an extra .1% of interest and went with ING Direct. I was able to do the whole registration process online with no problems or hang ups. So far this year I have earned more interest than every year before this combined, and for very little effort. I just regret not getting into online banking years ago!
Follow up. Thanks, Barb for writing. Yes, the AmEx customer service person was rude and abrupt with me as well, you know, suspicious. Ally, on the other hand, came through yesterday. My driver’s was enough and the joint account with my husband is all set up. The process was easy and straight forward and I also like that I can “chat” with someone anytime, phone or send e-mails. What made us go with Ally, for now anyway, is that they have an 11 month “no penalty” CD with a very attractive rate, cashable with interest accrued anytime after six days. We’ll see in the future. I also regret not getting our savings out of our bank and into one of these online ones sooner! But who knew interest rates would stay this low for so long?
I just got an account with AMEX, within 10 min. I enjoyed a good service and Its all up and running. Crazy fast.
Try Citizens Bank and Trust in Missouri.
i liketo open with saving account. plees help me.
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