Big Interest Rates with Online Savings Accounts

Recently I was faced with a dilemma. My BofA savings account was earning about 1 percent a year, and I knew I could do better. But I wanted to keep the cash relatively liquid and not tied up in mutual funds or other long-term investments (like paying down my mortgage). But with rates like that I might as well have stashed it under the mattress.

I did a little research on places which would provide liquidity, yet not lock me in to months-long terms so I couldn't access the funds. I aslo wanted to be able to transfer money online and quickly, for when I needed to refill my checking account. Paypal pays good interest rates (currently 5.02%), but I've heard so many horror stories about frozen and hacked accounts that I'm reluctant to keep much money there.

Finally, the answer emerged: Open a high-yield online savings account.

There are many such institutions out there, from HSBC to ING and more, which specialize in online savings. Even E*Trade has an online bank. The services work just like a regular bank, only there are no branches (well, some have a few branches) and no tellers. You sign up online, transfer money in and out via wire transfer, and even get an ATM card if you need cash out of the account. (Sorry, I'm not going to say which bank I went with; email me if you absolutely have to know.)

Best of all, interest rates are great: At over 5 percent, I found at least one which was comparable with the high-yield CDs at Bank of America, which currently yield 5.10% but only after an eight-month minimum term. Online accounts typically have no fees and no restrictions at all aside from requiring you to maintain a minimum balance... of $1. I think that's fair.

Of course, online savings accounts aren't for everyone. The lack of human interaction is a little scary: After typing a few keys to wire away my old savings account, I was left a little cold by the "Thanks!" message I got. Ummmm... now what? Turns out my login information and PIN were sent in the mail, and the documents I needed to log in to my account arrived after about a week. I'm pleased to report that all the money is there, earning the big bucks while I sit on my duff and write about it.

Got more online banking recommendations? Share them here.