Online Bank Accounts and Savings Options To Keep Your Money Safe

More choices for your safe money: online high interest savings accounts are favorites, but there are other savings options as well.

We’re all looking for some good ideas about where to stash our cash during a time of uncertainty. The economic downturn has prompted a lot of us to seek safety in conservative accounts, so I am providing some ideas beyond the traditional brick and mortar banking options that are available, along with some updates on our favorite online bank accounts.

In light of the economic downturn and low interest environment, many are exploring various banking options for saving and securing their assets. Here are some of the choices:

Online Bank Accounts

The following are high yield savings account options which are well-favored and highly popular among online customers; they offer some of the best returns for the money you’d like to keep safe:

I believe that an online bank account isn’t THAT much different from having an account at the standard brick-and-mortar bank, and is actually my personal favorite for liquid savings. Frankly, I’m not all that concerned about failing traditional financial institutions (these accounts are FDIC insured), but do wish that interest rates were higher across the board. Compared to the rates we’re seeing for online savings accounts, I’m receiving a whopping 0.50% at one of my credit unions, while most typical banks are even lower!

Hence, whether or not you’re new to the world of saving money, these online bank accounts offer some strong incentives: many online banks (ING Direct and HSBC, just to name a couple) offer interest-bearing checking accounts starting at 1.2%, and high interest savings accounts in the 2% range.

My spouse fondly remembers the checking account he opened with the proceeds from his paper route that earned 12%. Those days are certainly gone, but there’s no reason to accept the meager rates traditional banks are offering these days — not when you can open an account that pays better in about 5 minutes while lounging in your jammies.

If you do opt for an online bank, I recommend retaining an account at a local bank or credit union for easy cashing of the odd checks that you may need to write or cash.

Here are other banking options to consider as well:

Credit Union Accounts

Among some of the benefits of storing your money in a credit union as opposed to a traditional bank:

• They frequently pay higher interest on both savings and on interest-bearing checking accounts, as well as on money market accounts and CDs.
• As not-for-profit institutions, credit unions are generally less interested in nickel-and-diming their customers with fees than are the totally-for-profit banks. My credit union account is fee free — the way it ought to be.
• Many credit unions pay not only interest, but also dividends, to their account holders, as their account holders are their shareholders.
• The National Credit Union Administration (NCUA), like its cousin FDIC, has also increased insurance protection of deposits from $100,000 to $250,000 through the end of 2009.

Money Market Mutual Funds (MMMFs)

Similar to the Money Market Deposit Accounts (MMDAs) offered by banks, this version is offered by mutual fund companies. Unlike the MMDA, the MMMF is NOT insured by the FDIC. Rather, the mutual fund company usually kicks in enough to keep the net asset value (NAV) at $1 per share.

The problem here is when the fund “breaks the buck”, or when the NAV drops below $1. This had happened only once in the 37-year history of money funds until the chaos that was September 2008. Since then, additional funds have joined the ranks of buck breakers. The United States Treasury has since announced an optional insurance program to back covered funds that pay a fee to participate in the program. They’re adamant about keeping that NAV at $1.

Cash Management Accounts (CMA)

This type of account is offered through a brokerage and consolidates investments while providing cash transactional features for affluent customers. The CMA allows the customer to earn higher interest than a standard bank account, but keeps the assets liquid. CMAs usually have annual fees, but these may be waived for accounts holders who maintain balances in excess of $50,000. The Securities Investor Protection Corp. (SIPC) protects funds up to $100,000 in a brokerage CMA, while the FDIC insures cash up to $100,000 in deposit accounts at bank-held CMAs.

There are certainly choices out there for folks who are wary of the traditional bank, and there are many more alternatives than those I’ve mentioned here. If you’re looking for something new, do your homework to find the option or combination of options that will work best for you.

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