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:
- The perception of low returns
- Saving accounts are often categorized for the highly conservative
- None of the investment media (websites, newspapers, radio, TV etc) seldom talk about it
Instead, they talk about money markets, treasury bills [1] 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 [2] 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 [3]! 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 [4] is FDIC insured having a trusted name. Here are a few to consider:
[5]HSBC Direct Online Savings [5] – 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.
[6]WTDirect [6] – Currently, WTDirect is offering 1.76% annual interest rate [7] when you open an account with them, one of the best rates available today.
[8]E*Trade Max Yield Savings Account [8] – 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 [9] on the same day! The current yield [10] is 0.95% which is not bad at all!
[11]Discover Bank [11] – 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.
Conclusion
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!