One might think a high yield savings account in a ridiculously low rate economy like today's would be a waste of time but that thinking would be wrong. Despite the low savings rates evident in all the print and media ads an online high yield savings account remains a good place to stash excess cash.
Opening a high yield savings account is a good idea to store excess cash over and above an emergency cash balance held in a local savings bank. Typically a household should try to maintain cash in reserve of about six months worth of expenses. Not all households manage to do so but those who do should read on.
Think About Getting Higher Yields from Excess Emergency Cash
Having emergency cash tucked away in a savings account at your local bank is a good idea but a better idea is to take the bulk of the money held in reserve and stick it in a high yield saving account online instead. Emergencies don't happen every day, so it does not make sense to have your excess funds stashed in what amounts to a no or low interest bearing on-demand account. Smart money movers take those additional funds and deposit them in a no-fee online account at one of the high yield saving account banks. It only makes sense to do so.
Many Online Banks Used to Have Only Select Clientele
Some folks might be leary of using an online bank but many of the institutions online are either really ancient brands (Emigrant, Citibank) or names you easily recognize from heavy advertising campaigns (ING, Ally/GMAC). Besides these online savings banks are governed by the same Federal Reserve rules and restrictions as your local S&L. The only thing to be absolutely certain about before taking the plunge is whether the online bank is a member of the FDIC - which protects deposits up to $100K (although presently insurance is up to $250K since the banking crisis began - this is scheduled to end 12/31/09).
The risks associated with opening a
high yield savings account online however can mostly be eliminated by a little thinking and a little research. Selecting a bank specifically dedicated to managing saving accounts reduces the likelihood of a bank's parent company causing problems later on due to bad decision making outside the banking unit.
It doesn't take a whole lot to
open an online account either in terms of money (in many cases) or in terms of financial savvy. A short investment in time and learning goes a long way to enter the world of electronic banking.
