An online savings account has several advantages over a savings account at a brick-and-mortar bank. In addition to offering much higher interest rates, online savings accounts typically have fewer fees.
Being able to operate without the overhead of branch offices allows banks to offer these advantages on their online savings accounts. However, the world of online savings accounts isn’t entirely free of fees. An investor can still be hit with fees on their online savings account if they’re not careful.
Here are five fees and how investors can avoid them on their internet savings account.
ACH transfer fees. With any savings account, you will typically need to transfer money between the savings account and a checking account where you can write checks and pay bills. You may not have a checking account at the same bank where you have your online savings account. Consequently, you’ll have to make frequent electronic transfers between banks. This transfer capability is an important feature of an online bank and can be the source of fees.
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Make sure the online bank provides an ACH transfer service that allows you to move your money to and from your checking account at another bank. ACH transfers are done through the Automated Clearing House Network, which is a payment system used by all banks in the United States and is commonly used for direct deposit. If the online bank does offer an ACH service, make sure transfers are free for both incoming and outgoing transfers. A few online banks charge a fee for outgoing transfers. In addition, make sure the online bank doesn’t impose small limits on the amount that can be transferred. If you intend to deposit $100,000, you don’t want an ACH transfer service that has a daily transfer limit of only $5,000.
Excessive withdrawal fee. If a small transfer limit forces you to make multiple transfers, there’s another potential fee that could affect you. All savings accounts have a withdrawal limitation. This is due to federal regulation which limits savings and money market accounts from having more than six electronic withdrawals per statement period. Banks will typically charge a fee for each withdrawal above six.
Wire transfer fee. Another important feature of a bank’s ACH transfer service is the speed. When you initiate an ACH transfer, it can take one or more business days for the funds to move and to be available at the destination account. This is an important consideration if the online savings account is intended to be used as an emergency fund. If an emergency arises and you need to write a check from your checking account, you’ll want to be able to quickly move the money from the online savings account to the checking account.
If the bank’s ACH transfer service is slow, you might need to move the money using a wire transfer. A wire transfer is a fast way to move money between accounts, but there are usually fees. A wire transfer can move your money within the same business day, but most online banks typically charge a fee that’s around $20 when you send a wire transfer. A few offer free wire transfers. Sometimes the fee is waived if the customer maintains a large balance at the bank.
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Monthly maintenance fee. If you have to withdraw a big chunk of your funds for an emergency, you don’t want to have to worry about meeting minimum balance requirements. Some online savings accounts have minimum balance requirements to either qualify for the top interest rate or to avoid a monthly maintenance fee. Fortunately, it’s now common for online banks to offer no-minimum savings accounts, and these include many of the online banks that have the most competitive rates.
Account inactivity fee. If you’re lucky and you go years without an emergency, your savings account may not have much activity. That can be another source of fees.
Many banks have account inactivity fees. If you don’t initiate deposits or withdrawals from an account over a certain period of time, the bank can mark the account as inactive. This period typically ranges from six to 24 months. When the account is marked as inactive, some banks start charging a monthly fee for each month the account remains inactive.
Make sure to review your bank’s account inactivity policy. If there’s a chance you may go months without a deposit or withdrawal, consider setting up an automatic deposit that transfers a small amount from your checking to savings account every month.
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With an understanding of online banking and the potential fees, it’s easy to open an online savings account and avoid fees. Whether your savings is for an emergency fund or just a place to keep extra cash, an online savings account will earn much more interest than the vast majority of checking and savings accounts at brick-and-mortar banks.
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5 Ways to Avoid Fees From Online Savings Accounts originally appeared on usnews.com
