How to Compare Online Banking Interest Rates
When comparing interest rates online, it is easy to get distracted by the interest rate itself. But, with the prevalence of bank failures and high fees, more than simply the interest rate must factor into a comparison of online banking interest rates.
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Price of High Interest
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Expect to have early withdrawal and minimum balance fees accompany your high-interest rate account. This is because banks use your long-term deposits to make a profit. They make this profit by lending your money to other people at a rate higher than the amount they are paying you.
Research the Bank
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New or less established banks often use high interest rates to attract customers. However, high interest rates are of no value to a person who has lost his money due to bank failure. This is not to say that new or less established banks will fail, it is only to say that, when comparing high interest rates, research whether the bank offering the highest interest rate is FDIC insured. As of 2010, FDIC insurance pays each depositor up to $250,000 to cover funds lost from bank failure.
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Do the Math
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High interest rates must be viewed in light of the bank's annual fees and the amount that you have available to deposit. This is because a high fee can eat away interest earned on the account. For example, if you find a bank that pays 10 percent annual percentage yield on a savings account, then you will earn approximately $10 per year on a $100 deposit. If the annual fee is $11 dollars, then you will have lost a dollar by choosing this account.
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References
- Photo Credit Money Graph image by Yanir Taflev from Fotolia.com
