OSAs are MVPs
August 6th, 2007 | by rachel |
In spite of a number of “doom and gloom” reports regarding the poor savings habits (or lack thereof) of Americans, consumers cannot complain about the availability of high-yield savings options. The majority of those high-yield accounts are provided via the Internet in online (or “virtual”) banks.
Online banking has origins that go back three decades. Telephone banking was the 1st option for customer controlled, at home management of bank accounts. The beginning of online banking, as we recognize it today, is considered to be October 6, 1995. On that date, Presidential Savings Bank first offered an online option for its customers (and potential customers).
Online Savings Accounts (OSAs) have become one of the most popular offerings of online banks. In some ways, they seem too good to be true. In others, they seem to be the smartest and safest place to store and grow cash.
The overwhelming benefit of an OSA is the high interest rate and APY. Because online banks can reduce the amount of paperwork and the cost of transactions, they can pay customers more for the use of their money. Other benefits of an OSA include:
- simplicity and ease of use
- lower fees
- little or no minimum balance requirements
- flexibility and customer control
- the ability to maximize compound interest and see results quickly
Even with their popularity, OSAs do have downfalls for consumers to deal with. Depending on the perspective and technical “savvy” of a given consumer, some of these downfalls may prove to be “deal breakers” for potential online banking customers. The most significant disadvantages of OSAs (and online banking in general) are:
- security
- speed of transaction processing
- limited access to funds
- customer service and technical support limitations
An OSA is a good investment and it makes an excellent addition to a diversified investment portfolio. Certainly, an OSA is also a great way to establish and maintain an emergency fund of cash that is totally liquid. As with any account or investment, it is important to take the time to fully evaluate OSAs, generallyand the institution you are considering, specifically before making a deposit.
To evaluate an OSA properly, know and consider these things:
- What financial institution offers this account? Does this financial institution have a proven, consistent track record? Is this financial institution FDIC insured?
- What security measures are in place to protect your money? How do these security measures operate? How and when are they monitored and/or revised? Has this financial institution had problems with security breaches in the past? If so, were those breaches handled in a timely and effective manner?
- How does this account actually work on a day-to-day basis? What are the fees and minimum requirements for this account? Is the web site easy to navigate and aesthetically pleasing? What is the time frame for transactions being processed and funds becoming available? What are the transactions limits on this account?
- How and when is technical support and/or customer service provided for this account? Is it possible to talk to an actual person regarding this account? If so, where is the contact information for reaching that person available?
- What “extra” features or benefits are offered with this account?
Realistically, it is hard to find enough disadvantages of an OSA to keep from using them as a part of a financial portfolio. After opening an OSA, these tips will help you get the most from this valuable tool:
- Make regular contributions - Even small deposits accelerate overall growth.
- Pay attention to changes in interest rates and be aware of how those rates affect your account.
- Don’t link your OSA to your main checking account. IF there should be a security breach with this account, make sure that a small amount of money is accessible to someone attempting to steal it from you.
- Pay attention to FDIC Insurance limits. If you need to, open multiple OSAs to guarantee your deposits are totally insured.
- Name a joint owner or beneficiary on your account to minimize problems with accessing the account should you die or become disabled.
If you are interested in learning more about OSAs and getting current rate information, visit www.bankrate.com and/or the web site for the specific financial institution you are considering.