Forget Your Local Bank: Put Your Savings Here Instead

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Gone are the days where we had to choose a bank based on branch location. In this digital world, you can pick a bank that exists fully online, with no branches whatsoever.

Let's take a closer look at online banks and the advantages they offer for savings accounts, checking accounts , and more.

Online banks have some pretty sweet perks

If you've never considered thinking outside your neighborhood's banks, here are a few great features of online banks.

Higher APYs

First and foremost, I have to mention the higher interest rates you'll find on deposit accounts offered by online banks. This is due to the lower overhead costs incurred by online banks -- they don't have branches to maintain.

At a local bank (or even a branch of a big national bank), the best you'll often do for a savings account is just 0.01%. If you have $10,000 in your savings account, that'll earn you just $1 in a year.

But put that $10,000 in a high-yield savings account earning 4.5% APY (10 times the national average), and if you can hang onto that rate for a full year, you'll come out $460 richer -- just for leaving the money in the account.

However, the 4% and 5% rates we're seeing on high-yield savings accounts right now are outside the norm and are due to a higher federal funds rate that is likely to start declining soon. That said, you can still expect a higher rate than 0.01% from an online bank savings account -- even at a rate of 1% or 2%, your $10,000 will earn you $100 or $200 in a year.

Fewer (or no) fees

Another major perk of online-only banks is the lack of fees. My savings account with a big national bank charges a monthly maintenance fee if my balance drops below a certain threshold. But my online bank has very few fees -- no maintenance fees, no overdraft fees, and no excessive transactions fees.

Granted, for a brick-and-mortar bank, you may be able to meet certain requirements (like having paychecks directly deposited) to avoid a monthly fee. But wouldn't it be nice not to have to worry about this at all?

Better customer service hours

How does 24/7 customer service access sound to you? Of course, with an online bank, that won't be in-person customer service, but you'll likely be able to speak to a human via phone or online chat anytime. My online bank even has a neat tool on its website that shows you the expected wait time if you call for help.

Savings tools

Want to take advantage of tools like savings buckets, round-ups, and charts that show you your progress over time? Online banks are ahead of the curve for saving smarter, not harder.

Savings buckets are my favorite online bank feature -- they let you separate money in a single savings account into multiple sub-accounts, making it easier to save for different goals simultaneously.

Are online banks safe?

You might be wondering how safe online banks are -- a lot of people find the notion of a bank branch they can stroll into during open hours very reassuring. But rest easy; as long as you're opting for a reputable and FDIC-insured online bank, your cash will be safe in one (up to $250,000 per depositor, per FDIC-insured bank, per ownership category).

Read reviews of any bank you're considering from personal finance authorities (like us here at The Ascent), as well as regular consumers. This'll give you a sense of any potential issues with a given bank.

How do you know if an online bank isn't right for you?

As much as it pains me to say, online banks might not be right for everyone. If you're not comfortable with new technology, you might struggle to manage your money in an online account. And if face-to-face customer service is important to you, a local bank might just be the way to go. Finally, if you get paid in cash, an online bank may not be the right fit since you likely won't be able to directly deposit cash into an online bank account.

In this case, I recommend looking around to see which bank or credit union will give you the best deal on fees and interest. Just because you've been with the same bank for years doesn't mean you must remain there if there's a better offer on the table.

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