I’m one of those bizarre people that likes to keep a large portion of my assets liquid. I guess I learned this habit from my great-grandmother, who used to stuff old coffee tins full of cash, then hide the tins in her basement in what was her de facto savings account. Her old-fashioned way worked for her, especially when her working class Cleveland, Ohio, neighborhood exploded one day in 1944; everything in the house (including the house itself) was destroyed, but those coffee tins in the basement – and the money inside them – survived.

Ever since, however, my family has tended to stash its cash in a brick and mortar bank. Until now. Because I’m making the switch to an online bank.

Online Bank vs. Online Banking

Let’s start by clarifying something that may sound simple, but confuses an awful lot of people – myself included. Using an online bank is not the same as online banking. Right now, chances are that you use online banking to check your account balance, pay bills over the Internet, or even scan and deposit checks. Just about every bank in the country gives account holders the option to use its mobile or online banking platforms as an extension of their in-house services.

Joining an online bank is different. While you’ll still have access to online banking tools with an online bank, you won’t have a local branch to head to when you need to make a deposit; you won’t be able to visit a teller when the ATM is out. An online bank replaces the brick and mortar institution.

Why I’m Making The Switch

As I said before, I like to keep a lot of cash in my savings account; what can I say, it just makes me feel more secure knowing that I can access my emergency fund without having to jump through a lot of hoops. Isn’t that what an emergency fund is for in the first place? Right now, I have more than $12,000 sitting in a savings account at my traditional, brick and mortar bank. And literally, it is just sitting there. My money market account earns me just 0.05% interest. In other words, my $12,000 accrues less than $10 a year in interest.

This is my main motivation in switching to an online bank. I want to make my savings account work for me, instead of allowing it to work for the bank. Because an online bank doesn’t have as much overhead as a traditional bank, it can afford to give its account holders a little extra in the form of higher interest rates. For example, CIT Bank¬†offers great rates on CDs right now. I plan to take advantage of this.

What I’m Shopping For

I’ve come up with a list of criteria for my new online bank as it pertains to my savings account:

  • High interest rate on my savings account – this is the single most important factor in my decision
  • No fees for using ATMs or making balance transfers; no limits on the number of monthly transactions
  • I don’t care if the online bank has a minimum balance requirement for my account. I rarely have less than $10,000 in it, so a minimum balance requirement of $5,000 is a moot point for me

Comparing Interest Rates at Online Banks

Since a high interest rate is my main criteria for my new online savings account, I’ll be evaluating my options based primarily on that factor. I started by going to Bankrate.com to use their Money Market Account/Savings Rate tool. Since I know I’ll be depositing a five-digit sum of money, I searched using the $10k MMA option. Here were my results:

  • EverBankIntroductory interest rate of 1.25% for six months, then switching to an effective rate of 0.76%. $8.95/month in fees with the ability to write checks
  • CiTBank 0.90% interest rate with no introductory period; no fees, but no ability to write checks from the online account
  • American Express 0.85% interest rate, again with no introductory period, fees, or check writing ability
  • Ally Bank two account options – one MMA, one savings – both with a 0.84% interest rate from day one; no fees or ability to write checks

I knew I wasn’t going to see an APY of five or six percent, like during the hey-day of online banks, but I wasn’t all that impressed with the interest rates I did see. I decided to shift my tactics, and instead searched for all MMA/Savings Accounts, rather than limiting myself to accounts with a minimum opening deposit of $10,000 or higher. The results were largely the same, with one notable exception:

  • Barclays 1.00% interest rate right from the get go, with no monthly fees or check writing abilities

At this point, I was most interested in the options offered by CiTBank and Barclays. My next stop? Making sure my money would be safe.

Protecting My Savings

Whenever you’re opening a new bank account – whether at an online bank or anywhere else – you want to know that four little letters are associated with that institution: FDIC. Short for Federal Deposit Insurance Corporation, the FDIC protects your money at the federal level, meaning if your bank goes out of business for whatever reason, your deposits are insured (usually up to $250,000 per account).

Bankrate told me that both banks were members of the FDIC, and both the Barclays and CiTBank websites confirmed that information. For for me and my money, that wasn’t enough. I logged on to the FDIC’s website to use their search tool to verify that both banks were, in fact, members. (They were.)

My Decision

Since both banks offered me FDIC protection and no monthly fees, I opted to go with the online bank with a higher interest rate for my savings account – in this case, the Barclays account with a 1.00% interest rate. Over the course of the next year, I’ll make 20 times as much in interest as I was at my old bank. It’s still not enough money on which to retire – even for a week at the beach – but I feel better knowing that I’m getting the most out of my emergency fund, while also having the peace of mind that I can access it at a moment’s notice.

Reader, what are your strategies for maximizing the money in your savings account?