Disclaimer: This post may contain affiliate links. I would earn a little money with no extra cost to you. The opinions expressed are my own. Read my disclaimer to learn more.
Are you missing out on free money?
But that doesn’t mean you can’t start earning more money this month.
By making one simple switch, we’ve made an extra $45.12 in free money this year. I know it doesn’t sound like much, but it’s a lot more than we would’ve earned if we didn’t switch to an online savings account.
As of July 31, 2020, we’ve earned $45.12 in interest since we switched to an online savings account.
We still use a traditional bank in Wells Fargo, but in January 2020, we moved $5,000 to an online savings account with Capital One, while keeping the rest in our Wells Fargo account.
In that time we’ve earned $45.12 in interest with Capital One compared to, wait for it…
$0.38 in interest with Wells Fargo during the same time period.
That’s a HUGE difference! By switching to an online savings account, we’ve earned more money in 7 months than we’ve earned with Wells Fargo in the last 5 years.
And it’s not ever close.
My only regret is we didn’t switch to an online savings account sooner.
What is an Online Savings Account?
With all of the advances with the internet, tons of people prefer to use online banking features. You can use online banking to:
- Deposit money
- Transfer money between accounts
- Send money to friends or family
- Pay bills
It’s so much easier to log into my online banking instead of getting in my car, driving to the bank, waiting in line, just to do what I could’ve done in 5 minutes at home.
The only thing you can’t really do online is deposit cash.
A recent survey by the ABA Banking Journal supports that about 2/3 of Americans prefer to use online banking instead of going into a physical bank.
And the number of online bank users has risen almost 30% from 2014-2019, according to data from Statistica.
An online savings account is a step beyond the online banking features of your traditional, brick and mortar bank.
It’s part of an entirely online bank.
That means no:
- physical branches
- waiting in lines
- no face to face contact with people (which is nice during the COVID pandemic, and an introverts dream)
- wasted time commuting to the bank
When you switch to an online savings account, you can access your account information through the bank’s website, plus most online banks have an app that you can use.
If you’re already using online banking services, opening and using an online savings account is pretty simple and makes a lot of sense.
Plus you’ll earn more in interest (more on that in a second).
We opened an online savings account with Capital One, and their app is fantastic and super easy to use.
Are you ready to be debt free?
A step by step guide to make your own debt snowball spreadsheet.
Fully customizable and easy to use video tutorials to get set up. Learn how to organize your debt, make a plan, and get debt free.
4 Reasons We Switched to an Online Savings Account
I couldn’t be happier with switching to an online savings account. I’d read about online banks and savings accounts for a couple years, but it was easier to maintain the status quo.
I hope you don’t wait as long as I did.
I hope that you can get out of your comfort zone and open an online savings account so your money can work for you and earn you more money.
Here are my top reasons for opening an online savings account.
Higher Interest Rates = More Money Earned
When we got married, we had an emergency fund of $4,000 in our savings account with Wells Fargo.
We didn’t think anything of the interest rate at the time. We were just happy to have an emergency fund to decrease stress and make us feel safe and comfortable to weather financial hardships that might pop up.
I started researching online savings accounts in January 2020 and was immediately blown away by the difference in interest rates between Wells Fargo and any number of online savings account options.
It turns out that 7 out of 10 Americans are leaving money on the table.
Here’s how our traditional savings account kept us from earning more money.
Wells Fargo earned…wait for it…
That’s pretty terrible.
And by pretty terrible, I really mean downright awful and pathetic.
At one point we had almost $25,000 in our Wells Fargo savings account as we saved for a new car with our other sinking funds.
And all we got was a measly .01%. That’s $2.50. Ugh!
Now that we’re earning a higher interest at Capital One 360, I get excited every month to see how much we’ve earned.
This is a comparison through July of 2020. It’s not even close.
When we first switched to an online savings account with Capital One, the interest rate was 1.5% (pre-COVID). Since then it’s dropped down to 1%, which is still 100 times better than Wells Fargo.
We didn’t move all of our money to Capital One (for reasons I’ll mention later), but we moved a large chunk of our emergency fund so we could take advantage of a high interest rate savings account.
And so far it’s paid off. ??
If you want a simple way to set up your own sinking funds, I made an easy to use Sinking Fund Tracker so you can track all of your savings goals in one spreadsheet.
Lower Fees and No Minimum Balances
I freaking hate bank fees.
I get that overdrafts can be my own fault, and I take full ownership of those.
But that doesn’t stop me from calling my bank to try to negotiate or get out of them. And it usually works and keeps my money in my own pocket.
But it’s annoying to get charged money for having a low balance in an account. Clearly I don’t have a lot of money in there, so it’s really unhelpful when big banks take more money when they already know I don’t have a lot.
It doesn’t make any sense.
To avoid minimum balance fees I have to set up direct deposits into multiple accounts and then move the money around later.
It’s not terribly complicated, but it’s annoying.
Just let me keep my money in your bank. Is that too much to ask?!
But an online bank or online savings account is different.
Most online banks have no minimum balance, and therefore no minimum balance fees.
I don’t need to set up a direct deposit or jump through any other hoops to avoid fees. There just aren’t any, and it’s delightful!
It’s Easy to Track My Savings with an App
Most online banks have an app to help you navigate your account.
I know most traditional banks do as well, so this is kind of a tie. But I still love the apps for our online banks.
We have accounts set up with Capital One and Ally Bank.
Both of them are tremendous to work with, have zero minimum balance, and their apps make it easy to transfer money into or out of my accounts.
The apps connect easily with my Wells Fargo accounts so I can transfer money whenever I want into my savings account with a few clicks on my phone.
The same goes for when I need to use part of my emergency fund.
One downfall to transferring money to or from an online savings account is it takes up to 3 business days for the money to transfer.
This can be good or bad.
If you need the money NOW, like we did to replace our furnace in the dead of winter, it’s not helpful to wait for 3 days to get your money.
That’s why we choose to keep a portion of our emergency fund in our Wells Fargo savings account.
On the other hand, if it takes 3 days to transfer money you’ll be less likely to withdraw it on a whim to pay for something that’s not an emergency.
How to Choose an Online Savings Account
Honestly, there are dozens of great online savings accounts with great online banks.
Instead of diving into all of the options, I’m just going to give you a link to Magnify Money that compares 20 options of online savings accounts.
You can scroll through and find one that works well for you and that you’re comfortable with.
We chose Capital One 360 savings account because we already had a Capital One credit card and we could access both accounts through our app.
It was easy to set up and I’m really happy with them. I’m not partnered with Capital One, only a satisfied customer.
I also have accounts with Ally Bank, who have been great to work with too (also not affiliated with Ally Bank).
The biggest things I considered were reviews from friends, interest rate, and minimum balance fees.
Both Ally Bank and Capital One checked those boxes for me.
Are Online Savings Accounts Safe?
The short answer is yes.
If you choose a bank that is FDIC insured, your money is safe.
Of course online banks are susceptible to being hacked, just like your debit or credit card, but the FDIC protects your money if fraudulent activity happens.
And if you download the app for your online bank, you can check your account anytime to see if there’s strange activity. If there is, report it immediately.
Are You Ready to Switch to an Online Savings Account?
By switching to an online savings account:
- you’ll earn WAY MORE in interest
- your money is safe and secure
- you’ll be less likely to withdraw money
- have fewer fees and no minimum balance
To me it was a no brainer, and I’m very happy with the extra free money we’ve earned with a higher interest rate.
And the process was really simple.
Before you go, read this article on how you can win money when you add money to your savings account.
And if you have a minute, please click one of the share buttons below to share the benefits of an online savings account with your friends and family.
Are you ready to make the switch to an online savings account and earn free money?