Over 50% of American adults don't have any savings. It's all to easy to buy what you want now with credit and loans within easy access to fund purchases. If your looking to get debt free and save for purchases or have a cash reserve for lifes unexpected costs then a online savings account could be the answer. Before rushing off to apply you need to look out for features to compare such as introductory offers, interest rates, minimum investment and any fees or interest penalties.

Banks, of course, are always looking to attract new customers, and introductory interest rates are one way they do that. Just as credit cards may offer zero-percent rates to bring in new customers, banks offer higher-than-normal interest rates for a specific amount of time. When you compare savings accounts, this is one thing to take into consideration, but not the only thing.

Assuming you keep the account for a while, the ongoing interest rate will actually be more important in the long run than the initial interest rate. If on the other hand you have a large lump some cash investment, such as a home deposit, that you know you'll be using within six months or so then you may be able to make use of the high introduction rates.

However, many times opening offers can have a downside in the small print. In some cases banks require a minimum balance to be mainatined either permanantly or for a certian period after you open the account to avoid being penalised by fees. If you withdraw before the specified time period is up, you'll pay for it. In some cases the penalty amount can more than negate the interest you earned.

Some accounts may be assessed fees, either to open, to close, or on an ongoing basis. While these should always be disclosed they are often hidden away in the small print. Especially if you choose an online high interest account, you'll want to think carefully if there are fees involved. One of the main advantages of online accounts is low or no fees, since the bank doesn't have to maintain brick-and-mortar branches. If the best savings rates are offset with high fees, you may be better off looking elsewhere.

Another thing to look for are hidden interest penalties in the month you withdraw your funds. These fees are often not noticed in the small print but can have a significant impact to the real return you make on your investment. Getting less than you thought could put a crimp in your plans.

Sometimes, in order to get an advertised rate, you need to deposit a fairly high minimum. This can be $10,000 or more, in some cases. The minimum deposit amount can be combined with an early withdrawal penalty, turning a high interest savings account effectively into a short-term certificate of deposit. Make sure an account with these restrictions will serve your needs before signing up and sending your money.

High interest savings, whether via a standard bank or an online bank, are a great tool, and should definitely be considered as an addition to your savings plan. Just be sure you read all the information about the account before you sign up, and know about any dates for withdrawal and any fees that might be associated with the account, either on a one-time basis or on an ongoing basis.


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Author Richard Greenwood writes personal finance articles on topics including online savings account products. He is Director of the Click 4 Group who run financial comparison sites to compare bank accounts from leading banks.