We all know the internet has changed a lot of things in the world and upended several industries like taxis, hotels and retail shopping. Now it looks like the financial industry’s turn as several new online only banks have sprung up. These banks often operate without retail brick and mortar locations, so they have much less overhead and will pass those savings on to the consumer in the form of incentives.
Banks also offer incentives to customers to open a savings account so they have capital to perform their other functions like lending to consumers. If you have a savings account with a bank they are more likely to loan you money for a real estate line of credit, car loan, or anything.
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What if I don’t have a lot of money to save?
Don’t worry if you don’t have a lot of money to put into a savings account, most banks will accept almost any amount to open a new savings account. The important thing is to get started and then contribute whatever you can to your savings every month. The power of compounding interest will do the rest. Even if it’s just a few pennies one month then a hundred dollars the next month, those amounts will add up.
Benefits of an Online Savings Account
These new online only banks have many benefits over traditional brick and mortar banks like Wells Fargo or Chase. They are smaller so they generally provide better customer service and are often willing to offer much higher interest rates.
Do you ever get frustrated when your bank is closed for the holiday or weekend? Online banks are open 24/7 and will sometimes offer ways to deposit checks via a mobile app or online. Because you access your funds online, they are always available for you to transfer, withdraw, or do online bill payments. These online banks are 100% real and backed by the FDIC, the Federal Deposit Insurance Corporation. This means that your money is guaranteed by the federal government up to $250,000 per account just like the traditional brick and mortar banks.
Incentives and Bonuses
You may have read the news recently about Robin Hood, a popular stock trading and investment app, recently launched checking and savings accounts with 3% APY. APY means Annual Percentage Yield, or the percentage you will receive on your balance over a year. This amount is unheard of at a traditional bank, for example Wells Fargo offers just 0.3% APY on its standard savings accounts.
Think about that for a minute. If you deposited $1,000 into a traditional savings account you might earn as little as $5 over a year vs $30 in an online savings account. That may not sound like a lot but it’s a 600% difference! In addition, online savings accounts typically deposit your interest earnings daily. This is an important part because it means your savings compound daily. If you’ve never heard of the power of compound interest I suggest you google it. It’s been described by Albert Einstein as “The most powerful force in the universe.” No joke.
This means the interest you earn is added to your balance and the next interest payment is calculated on your new balance. So if you just leave it there it will grow and grow and grow. Of course the best strategy is to also feed your savings account monthly as much as you can, as every dollar you add to your balance makes your compound interest that much stronger.
Often times these new banks are so eager to win your business they will offer bonuses or incentives for opening an account. You can find banks that are willing to do deposit matches, meaning the bank will actually match your deposit dollar for dollar! They are literally willing to pay you to open an account on the hopes that they can win your continued business. This money is yours and appears in your account for you to use as normal.
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1. https://www.magnifymoney.com/blog/earning-interest/best-online-savings-accounts275921001, 2. https://www.valuepenguin.com/banking/average-bank-interest-rates
