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Finding The Best Online Bank



Online banks are the place to bank these days. Everyone is looking for the bank that is paying the absolute highest interest rate on savings accounts. However, finding the best online bank is not just a matter of determining who is paying the highest interest rate. While a high interest rate is important, there are a number of different factors to take into consideration. For example, you have to look at the operations of the entire bank and see if it is the best place for your money. Here are 5 things to look for when opening your new savings account:

1. Financial Soundness
A bank’s ability to pay interest is only as good as the bank’s capital reserves. It’s important to place your money with a bank that has excess capital. You want to be sure that when you deposit your money in the bank that you will be able to get it out. The FDIC may guarantee deposits up to $250,000, but no one wants to go through the process of waiting to get their funds because their bank went under. You can check out the soundness of your bank on websites like Banks with 5 star ratings are the best capitalized and banks with 1 star ratings are headed for receivership.

2. Years in Operation
There are a lot of sound financial institutions that are good places to put your money. There are also a lot of fly-by-night banking organizations that appear every day. They pop on the scene offering high interest rates to new customers. These rates are unsustainable and the bank is forced to cut the rate substantially or go out of business.  Look for online banks that have been around for a while and have a good long-term track record.

3. Interest Rate
The interest rate paid on your savings account is a critical factor. You want a bank that gives you the most bang for your buck. Look for banks that rank in the top 10 in terms of APR. Your bank should be competitive with other banks in terms of its interest rate. However, don’t just abandon your bank because another bank pays more interest. For example, it is not worth leaving your bank for an extra 0.1% from another bank, especially if your current bank has other advantages over its competitors. On the other hand, it is definitely worth leaving your current financial institution for an extra 1% if it passes the other tests discussed here.

4. Ease of Withdrawal
There is no point in placing your money in a bank if it is a hassle trying to get your money back out. Some banks require that customers call first to request a withdrawal. Other banks may take up to a week to distribute your funds. That is absolutely ridiculous. Withdrawing your money should not be a pain. It should be an easy process that can be done electronically and takes 1 or 2 business days max.

5. Customer Service
What’s the point of a company having customer service agents if you can never reach them? Whenever it comes to your money, customer service should be of the utmost importance. Responses to your phone calls and email should never take longer than 24 hours. Find a banking institution that is prompt and helpful whenever you have a question. If you feel mistreated by your banking institution, then look elsewhere. That’s a bank that obviously does not value your business.

Here are a few of my favorite online banks who satisfy the above criteria and pass these tests with flying colors:

  • Ally Bank
  • ING Direct
  • Capital One Bank
  • Emigrant Direct

What do you take into consideration when looking for the best place to put your money?

Mark Riddix
Mark Riddix is the founder and president of an independent investment advisory firm that provides personalized investing and asset management consulting. Mark has written financial columns for Baltimore and Washington, D.C. area newspapers and is the author of the book, "Your Financial Playbook."

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