The benefits of an online savings account

Five questions to ask before opening an account with an online bank

Have you ever considered an online bank? I must admit that handling all financial transactions in the virtual world is tempting because of the convenience. However, I still want an old-fashioned "brick and mortar" bank that I can pop into when I need to discuss my finances with a real live person and not just a disconnected voice over the phone. I inquired my financially challenged friend why he had an online savings account when his credit union offered a free savings account for his use. My friend uses an online savings account because it is harder to get to his money and, therefore, he is able to save more. No matter what the reason someone may have for wanting an online savings account, there are a few things to keep in mind before sending your money into the World Wide Web.

Five questions to ask before opening an online savings account

1. Are you FDIC insured? If the FDIC does not insure the financial institution, do not open an account. Financial institutions that are insured through the FDIC provide up to $250,000 of insurance for each depositor. Do not take the word of the financial institution or assume because they have something on their website they are insured -- check it yourself through the FDIC's Bank Find database. If the online bank says they are insured with the FDIC and are not on this list, notify the FDIC immediately.

2. How do I make a deposit? Before you commit to opening an online savings account, find out how you make a deposit. If it is complicated, time consuming or inconvenient, you are more likely to spend your money rather than making a deposit. Most online banks accept direct deposits from your paychecks or give you the option of linking the the online savings account to another account so you can transfer money into the savings account.

3. How do I get my money? Equally important is to find out how you can get your money out of the savings account when you need it. Typically, online banks provide customers with an ATM or debit card that can be used at various ATMs or used as a credit card when paying a vendor. If the bank allows you to link to other financial accounts to your online savings account, you can simply transfer money from your online savings account to your local bank account.

4. What is the interest rate on a savings account? Online banks can offer higher interest rates on savings accounts because they do not have the overhead of traditional financial institutions. Shop around and find the best interest rate before deciding on which online bank is right for you.

5. What are the fees associated with a savings account? Make sure you know every fee or charge associated with an online account before depositing a dime. As with any bank, online banks will charge fees for services. Ask about fees for ATM withdrawals, transfers and maintenance. If the fees exceed the interest you will earn, then move on to the next online bank and check their fees against their interest rates.

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