In a previous post I wrote about What is the Right Emergency Fund Size? After studying various experts, the consensus is on saving 6 to 12 months of living expenses. The next logical question is where should you park your money so that it is liquid and it still gains a respectable interest rate.
Big Retail Banks
Most people are content storing their money in a big retail bank savings account. My family belonged to these mega banks from when I was young. We used to have accounts at Bank of America, Citizens, Citibank, etc since they were available in our city with large, fancy branches. After I graduated college I started looking into these banks to see what sort of interest they were paying. Much to my amazement, I found out that they were paying close to 1% at the time. This seemed like a very small number so I started reading Personal Finance blogs.
Online Savings Accounts
One of the blogs I followed advocated Online Savings Accounts since they had higher interest rates than big retail banks but were still FDIC insured. These accounts did not have access to fancy branches. This was fine because I hated going to the bank! I much preferred an account that was online and had good customer service. Plus you could transfer money back and forth to a retail bank in as few as 3 days. My first Online Savings Account was through HSBC. The interest rate at HSBC was around 6% when I first signed up. I couldn’t believe that it was roughly 5% higher than one of my retail bank accounts I had since childhood. Alas, over time HSBC kept lowering their rate until it was close to 0%.
Favorite Online Savings Account
An Online Savings Account is a no-brainer for your Emergency Fund. I have tried a few different Online Savings Accounts over the years and the quality I find most important is consistency. I don’t want to sign up for an account and then find out that the interest rate was just a teaser for a few months. The next most important thing to me is a high interest rate. Finally, I do not want to pay any fees, I want fast transfers, and I want good customer service. My favorite Online Savings Account is the Ally Online Savings Account. Ally is consistently among the top interest rates at bankrate.com and does not have a max balance for their interest rate. They are also a reputable company, are FDIC insured, and have no monthly maintenance fees.
The current rate for an Ally savings account is 1.20%. This compares to a Bank of America savings account currently at an atrocious 0.01%. As federal fund rates rise, Ally will also periodically increase their rates. The transfers between Ally and an external bank are between 1 and 3 business days. There is also no minimum balance required to open the account.
The Ally Online Savings Account provides many benefits over big retail banks and other online banks. Once you are an Ally customer you will never miss going to a bank branch again. Depending on your account balance, you can gain thousands of dollars in interest per year with Ally with little to no effort. Stop giving your money away to the profits of the big retail banks and sign up for Ally today!