Financial planners often recommend online savings accounts for emergency funds. We all need an easily accessible liquid asset for emergencies and unexpected expenses. But, liquid doesn't necessarily require parking your emergency funds in a local bank branch or credit union that offer minuscule returns. Fortunately, there are several high yield online savings accounts.
One I found is specifically good for boomers and the current interest rate is 1.4% with no stock market risk. It's an online savings account, FDIC insured.
Several years ago I opened an online savings account with Barclay's Online Banking after doing a bit of research. The above average interest rate attracted me initially, which was around 2% at the time. Now it's 1.15%. In addition, they paid a $500 bonus for opening the new account after making a sizable deposit. The initial deposit wasn't an issue given it was far less than I needed in my emergency fund. In fact, I was glad to move the money and pocket the 2% interest and $500 sign-up bonus. My credit union pays 0.05% interest (nothing basically).
Emergency Funds - 5% Return
My average return was over 5% by opening new online savings accounts that paid sign-up bonuses and above average interest rates. Here's a post with the math and tactic I used at the time: Higher Returns For Emergency Funds Management and Math and another post on emergency funds management for higher returns. A good strategy but new account sign-up bonuses are getting hard to find.
Today, there are online savings accounts that pay you a higher interest rate than Barclays Bank. One is Marcus by Goldman Sachs which is great for boomers. Why? It pays 1.3% interest plus an additional 0.1% (1.4% total) for AARP members. Yes, boomers that's us. Check it out if you have an AARP membership. I expect the base interest rate to slowly go back up, but it may not anytime soon. For now, 1.4% ain't all that bad considering the alternatives and stock/bond market volatility.
Online Savings Accounts
Things to look for when reviewing online savings accounts:
- No maintenance fees
- No minimum balances (or very low balance requirements)
- Known, well established institution FDIC insured
- Easy access to your account, most include an app for your smart phone
Again, something is better than nothing as long as you're not increasing your risk with emergency funds. I hope this helps you with your financial independence (#FI).