Best online banks: Savings and checking accounts

Published 11/7/09 (Modified 8/31/16)
By MoneyBlueBook

If you're searching for a list of the best online banks for your savings, then you've arrived at the right place. One of the most common, if not the most often asked question I get as a personal finance blogger is which bank I would recommend to those looking to get the best interest rate on their money.

While some of us plow our personal savings into home mortgage payments or invest them into stocks, most of us invariably keep a certain stash in more accessible bank accounts for emergency fund purposes. Some like myself also use high interest savings accounts to save up money for specific purposes -- in my case, I'm saving up for a future down payment on a house.

So, if you're keeping money in a bank account anyway, why not try to get the highest interest rate possible? To address this need, I've compiled below a list of what I believe to be the best online banks available today -- banks that offer the best deals for high yield savings accounts. Many of the recommended firms are also very competitive in the areas of certificates of deposit (CDs) and checking accounts as well.

Unfortunately, with interest rates at historical lows across the board given the current economic climate, the term "high yield savings account" is more of a comparative delineation than an accurate description. Just a few years ago, one could easily rake in a hefty 5 percent to 6 percent annual percentage yield (APY) with popular online savings accounts and high yield CD rates. But those days are long gone. Today, the top online banks only offer a fraction of that.

But despite today's overall lower rates, the yields found at these Internet-based banks still greatly exceed the just-above-zero interest rates found at most local brick-and-mortar banks. Think the best bank accounts are found at places like Citibank, Bank of America, Chase or Wells Fargo? Think again. The APYs offered by Internet-based online banks almost always greatly exceed the paltry interest rate offerings of the brand-name banks, while offering the same FDIC insurance guarantees and transactional security protections that are equal to -- if not better than -- those offered by the big boys.

Benefits of online savings accounts: Impressive rates and FDIC Insurance

Because of their much lower overhead costs, online banks generally pay much better rates on savings accounts, checking accounts and CDs. Additionally, online bank accounts are much less likely to have minimum balance requirements than ordinary retail banks, and may also offer other conveniences and advantages over the accounts at traditional neighborhood banks and credit unions.

So long as the customer has access to an Internet connection, online bank account transactions can be performed, balances can be checked and funds can be transferred in and out anywhere and anytime. The ability to keep 24-hour tabs on your account funds, pull up account history data on demand and conduct transactions without cumbersome paper forms are some of the clear advantages of Web-based banking.

To compete with the traditional big name banks, numerous online banks have eliminated their monthly fees and account minimums, and now offer a wealth of free financial services that include bill pay, budgeting tools, fund transfers and out-of-network ATM use.

Below is comprehensive review of what I've found to be the top online banks for high interest checking and high yield savings accounts. Each offers full FDIC insurance coverage, guaranteeing the safety and security of account funds up to $250,000 per depositor from unexpected losses due to institutional failures.

List of the best online banks for savings accounts

1. Everbank - I highly recommend Everbank if you're looking for a top-tier online bank that offers great rates for savings accounts and checking. EverBank's product offerings are diverse and include money market accounts, CDs, credit cards and even currency-investment options.

You may not be as familiar with EverBank as you might be with a few of the other banking names on this short list, but they've been around for some time. Since the beginning, EverBank has always earned awards and praise for its banking features and online services. Money Magazine rates EverBank as one of its "Best Of Breed Online Banks", Kiplinger's Personal Finance ranks the firm's Everbank FreeNet checking account very highly and even Forbes Magazine has ranked the bank among its "Best of the Web" for several years.

Everbank's popular Yield Pledge Money Market Account requires a minimum initial deposit of $1,500 and starts out at a high introductory rate that tops most high-yield savings rates in the market. After a three-month introductory period, the rate automatically adjusts to a slightly lower rate, but one that is still higher than most offered by other online banks. Thereafter, there is no monthly fee so long as a balance of $5,000 is maintained. For more details and commentary, please see my Everbank review.

2. Ally Bank - Formerly known as GMAC Bank, Ally Bank markets itself as a new approach to online banking -- one that offers transparency and a reformed way of doing business, offering a flexible array of unlimited sub-accounts, daily interest compounding, no minimum deposits, no monthly fees, no minimum balances and no sneaky disclaimers.

I personally have deposited quite a bit of cash with Ally Bank and have found their online banking services to be very straightforward and reliable. Ally's banking rates are very high and there are no confusing tiered interest rates to contend with. What you see is basically what you get, with the usual assortment of high yield savings accounts, money market accounts and high-yield CDs. However, what's uniquely appealing about Ally Bank is its offering of no-penalty CDs that allow account holders to avoid paying any fees to transfer money out prior to their CD's maturity date. For more info about Ally's banking features, please read my Ally Bank review.

3. E-Trade Bank - Known more for its online brokerage arm, E-Trade is a one-stop-shopping, all-in-one banking/discount brokerage firm. They offer pretty much the full package in the way of banking and brokerage services, including checking accounts, mortgage services, CD's, Roth IRAs and investment guidance. Best of all, E-Trade does not impose any minimum balance requirements to open a new account. Those who want the ability to instantly transfer money back and forth freely between their banking and broker accounts will find E-Trade to be extremely appealing, as the company seamlessly integrates the two services into one. If you want to know more, see my E-Trade bank review and my E-Trade broker review.

4. FNBO Direct Bank - FNBO Direct is the online banking division of the First National Bank of Omaha -- a bank with a great reputation that largely escaped the credit crisis that plagued most of the other banks in some shape or another. FNBO Direct offers competitive rates for its account holders and imposes no fees or minimum balance requirements. Fund transfers are quick and links to other bank accounts are easy to set up via a series of test trial deposits. ATM card options are available for those that wish to access their account funds from automated teller machines.

The bank's high yield savings account was one of the first to start offering super high rates during the initial heyday of Internet-based banks, and continues to be one of the most popular choices for its consistently high interest rate offerings. As with all of the recommended banks on this list, FNBO offers full FDIC insurance limit coverage on deposits. Please check out my FNBO Direct review if you wish to learn more about this online bank.

5. Capital One 360 - As the granddaddy of them all, Capital One 360 has been around since its emergence during the early dot-com era of 2000 (though it was then known as ING Direct). Since then, Capital One 360 has solidified itself as one of the best-known and most hassle-free online banks available. While the firm's bank rates have fluttered around of late, its yields are still competitive and easily exceed the rates offered by most neighborhood banks. Overall, Capital One 360's banking products are easy to open, easy to use and ideally suited for those new to online banking. One thing that most reviewers of financial products generally agree on is how simple and straightforward Capital One 360 accounts are to manage. Capital One 360 offers a wide array of products today, including savings, checking, and investment options.

6. Dollar Savings Direct - Under its much larger parent Emigrant Bank, Dollar Savings Direct continues the tradition of offering great high yield savings rates. New savings accounts are easy to open and hassle-free, boasting no account maintenance requirements, no maintenance fees and no hidden charges. New accounts do require an initial minimum deposit of $1,000, but there is no stated obligation that account holders must actually maintain that balance after that. If you are an aggressive bank rate chaser like myself and desire the safety and security of full FDIC insurance coverage, you should definitely click through and check out what Dollar Savings Direct Bank has to offer. For more details, take a look at my Dollar Savings Direct review.

Alternative sources of high interest rates

Generally, if you want a good mix of cash liquidity, account accessibility and reliable yields, you ought to stock with high yield savings accounts. But if you're willing to exchange a little bit of liquidity and lock up your monetary funds for anywhere from one month to five years or longer, you might be able to get a better interest rate yield via a CD. Check out my list of the best CD rates for what some of the top online banks are offering in that department.

Speaking of rates, those of you who are disappointed with the pitifully low interest rates on checking account funds might be surprised to know that there are high-yield checking accounts out there that offer competitive interest rates too. The rates offered are frequently the same or even better than the best online savings accounts and CDs. The catch with these high interest reward checking accounts is that they often have stringent maximum balance limits and frequently require account holders to execute a certain number of debit card transactions a month to qualify. But if you're up to the task, they may provide you a decent rate of return on your everyday funds.