Adding an Online Savings Account as Part of Your Investment Strategy

by Investing School on December 24, 2008

That’s right.  The old and boring online savings account should be part of anyone’s investment strategy because it’s highly liquid and there’s not much investment vehicles safer than a FDIC insured savings account.

When we think of investing, CDs or saving accounts usually don’t come to mind because of:

  1. The perception of low returns
  2. Saving accounts are often categorized for the highly conservative
  3. None of the investment media (websites, newspapers, radio, TV etc) seldom talk about it

Instead, they talk about money markets, treasury bills and the like to make it seem like sophisticated investors never put money in saving accounts.  As a consequence, many people have a misconception that saving accounts are just bad and if you ever want to get ahead, cash should be in money market or treasury bills.

FDIC Insurance and High Yield

What CNBC and the like don’t tell you is that big investors don’t put money in saving accounts because they cannot get the same deal as retail investors like us.  Since the FDIC has traditionally insured up to $100,000 (recently increased to $250,000) per account holder, it doesn’t really help money managers with hundreds of millions of dollars.  Instead, they put their money in treasury bills which currently offers negative returns for exchange that the government will protect its principle!

On the other hand, we (those of us that don’t have cash of more than $250,000 sitting around) have an open offer for 100% of the money insured plus about 3% annually in interests with absolutely no obligations in online savings accounts!  I bet that if the same deal is offered to any money manager with their millions, they would jump on it immediately!

A Look at Different Options

There are many offers online so it’s important to make sure that the online bank is FDIC insured having a trusted name.  Here are a few to consider:

  1. hsbcHSBC Direct Online Savings – Many people who came from UK or Hong Kong loves HSBC and trust this bank. With its 1.55% interest at its online savings account and the ability to transfer funds within its own accounts with ease (even between across accounts opened in different countries), this option is a solid offering for those who can take advantage.
  2. wtdirectWTDirect – Currently, WTDirect is offering 1.76% annual interest rate when you open an account with them, one of the best rates available today.
  3. etradeE*Trade Max Yield Savings Account – This is a must have for those that have a E*Trade brokerage account because you can easily transfer money from the online savings account to and from the savings and use it to buy and sell securities on the same day! The current yield is 0.95% which is not bad at all!
  4. discover bankDiscover Bank – This online savings account is backed by the highly profitable credit card business and offers one of the highest rate in the industry today.

How Do You Use It

For the high yield alone, I’ve switched to using only online savings accounts for my cash a few years ago. In fact, I have an account with all of the above institutions and will transfer money to the one that offers the highest yield at the time. Even though there’s a limit on 6 withdrawals per month on each account, it doesn’t bother me at all because I never even get close to that many withdrawals.


If you’ve never opened an online savings account before, please don’t follow my strategy and open all 4 savings accounts above. Instead, pick one that you like and open just one account and try to learn the interface and get comfortable with managing your cash this way before adding others. The last thing you want to do is over complicate your finances and investments.

However, if you have an online savings account already and see that one of the bank above offers a higher yield, take advantage right away because not going for the highest yield is almost just like giving up free money!

Putting your money in online savings accounts might not get you hot dates but it will sure help your wealth building strategy!

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{ 16 comments… read them below or add one }

Eric J. Nisall December 24, 2008 at 10:43 am

Having liquid funds in an account that is guaranteed not to lose any principal is always a smart idea. The problem is that many people are still unsure of what online accounts are and are still relatively scared since they cannot physically walk into a building to transact upon the accounts. Unfortunately, these people are missing out on quite a bit of interest compared to the local banks. I wrote Isn’t it time you start looking to online banks to boost savings? a while ago to help explain that most of the “online” banks were simply new divisions of some of the oldest institutions areound that were trying to reach new markets.

Reply December 25, 2008 at 7:40 am

I love my online savings account. I direct deposit money from my paycheck into that account; but I may close the one I have. Their rate has gone down significantly from when I opened it.

They are offering me a good CD rate though.


MoneyNing December 25, 2008 at 12:25 pm

PennySeeds: Direct depositing is a great strategy because it forces you to save 🙂

What is the rate of your savings account? Hopefully, the ones above have a better rate for you to consider. I think HSBC actually have a 3.75% promotion going on right now.


Eric J. Nisall December 25, 2008 at 7:12 pm

Here’s a list from as of tonight. HSBC is only at 3.00% APY, but there are a few higher-paying accounts even though they aren’t the greatest banks.


MoneyNing December 25, 2008 at 8:41 pm

Eric: Great list! I saw the $3.00 when I was researching too but I see the 3.75% ads everywhere the last 2 days so they might have a limited time promotion going on?

I just hope that everyone starts competing for our money so we get better rates!


Eric J. Nisall December 26, 2008 at 5:27 am

I found what you might be referring to. It is a 3.75% promo rate until March 16, 2009 but only for Canadian residents. Check out


MoneyNing December 26, 2008 at 6:53 am

Eric: Thanks for the explanation 🙂 It make sense for me to see the ad everywhere since I’m visiting my parents up here in Toronto!!

It’s nice to see that they are getting a good rate since Canada has traditionally had a lower interest rate for savings accounts.


MF December 31, 2008 at 2:41 pm

I signed up for an ING Direct savings account this autumn and so far, so good. One of my favorite features is an automatic transfer feature. I have it set up to automatically deduct money from my online checking account (at another bank) twice a month. I can change the parameters anytime I want, and it saves me the trouble of having to ask the HR folks at work to split up my direct deposits between accounts. Instead, everything gets deposited in my checking account, and I suck the money out of there into my ING savings account. Two months ago they were offering 4% APY on one-year CDs, so I bought a few. It was effortless since the money was coming from within the same bank.


MoneyNing December 31, 2008 at 3:29 pm

MF: I’ve really heard many great things about ING Direct. The only thing seems to be that they aren’t offering as high an interest as the other online ones but we are only talking about less than 0.3% a year so it’s worth it for some.

On a second note, I’m glad that you are using the automatic savings feature! That’s a great way to save!


Magali January 2, 2009 at 11:04 pm

I’ve noticed that online savings accounts have higher interest rates than anything local so thanks for backing up what I was already thinking.


MoneyNing January 3, 2009 at 3:38 pm

Magali: Oh online versions definitely have higher yields (even from the same bank) and the great thing is that it’s much easier to manage and transfer funds to and from different accounts and different institutions.


Chiko January 4, 2009 at 3:08 pm

Anyone know if what rate Wamu (or should I say JP Morgan Chase) is offering?


Jules January 4, 2009 at 7:00 pm

Does anyone have insight into DollarSavingsDirect?


MoneyNing January 4, 2009 at 8:03 pm

Chiko: They actually have a neat little utility on their website so go check it out. After you put in your zip code, it will have a whole table of rates.

Jules: Dollars Savings Direct seems to be a spun-off of Emigrant Direct and it is currently offering a 16 month CD for 4.00%. It’s FDIC insured so the principle should be safe.


Cheryl January 18, 2009 at 2:17 pm

We have had an online account with GMAC for over almost two years now, and although the rate has dropped a bit from when we originally signed up, it’s nice to see the interest amount add up over time! We do an auto-debit every two weeks and it’s helped a lot with our savings / debt-reduction plan.


James January 21, 2010 at 8:15 am

Boring! Although there is plenty of security in an FDIC savings account the prospects of good returns are slim. What I propose is a structured investment. At first glance it looks like any other investment but the fun part of this is that it follows the stock market. The BEST part is that it is insured by the FDIC so you cannot lose your initial investment! See the prospect of great returns with the security of a savings account.


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