How safe are these online savings accounts - really?

This is NOT a where is the best rate post. This is a safety post.

I’ve got a bit of cash that is just sitting in my checking account(s). My old reliable online bank just pays nothing for savings. They function, but they are raping their customers. Looking at you USAA. USAA is not alone, they are running all the way to the bank with their profits. Yes, I just said that, +1 mean for a bad joke.

Now, if I go out to google, I can find 40+ “insured” organizations that offer me 40+ times the rate most banks pay. I’m using discover currently for some spare cash, but I could make more. But it made me think - exactly how safe are all these accounts? Screw FDIC this and that - I have no confidence in most government institutions. Look at the bank in California that failed last year… How do you f*** that up? But back to the topic.

I can go down to my local branch and look straight in the eyes of my banker who has helped me for 20 years. These online accounts?

lol, so 5 minutes later I go out to facebook to chase someone down. I come across high yield savings from laurel road at 5.15%. never heard of them…

Just last week I asked a friend of mine who sits on the board of a small bank, why they didn’t offer high-yield savings accounts.

One of the reasons he gave that his bank doesn’t offer high-yield savings accounts is that they require a lot more time and staff resources to manage. He said they tried it a while back and it attracted attention from hundreds of scammers and ne’re-do-wells from all over the globe. After a few months they bailed on the idea.

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I’ve had Discover Bank (+ the credit card) for years. I haven’t really looked to change it, though I could get a little more interest than it currently pays (4.25% savings, 4.70% for my CD). Inertia, I guess – I have the established accounts, bank links, etc. and I don’t want to keep changing banks to chase an interest rate.

I just saw this – Capital One will be buying Discover Bank: What the Capital One-Discover Deal Could Mean for Bank Accounts - NerdWallet

I don’t get your post. I have been with USAA (which is what caught my eye) for 42 years. I LOVE USAA. However I recently moved the majority of my savings to online savings because I could not resist interest rates with yields 5 times higher.

I’ve used CIT Bank successfully for years with no issues and they’re on Clark’s list in every newsletter. I also use Marcus, Pen Fed online, and a MMA at Vanguard with no problems. I’ve used other online banks successfully in the past. They are quite safe but there is some lag time accessing your money as you have to link your local bank to transfer it then initiate transfers as needed.

:slight_smile: then you do get my post. yes, I have many online accounts. My point/question was that there has been a huge expansion of “on line savings” offerings over the past few years - mainly because someone had the brilliant idea to farm old school bank accounts for the cash sitting in them.

Pondering this, I have Discover, 5th 3rd bank, this, that, and a few other offers for me to open accounts. And it just made me wonder.

I’m over thinking again.

I’ve used a variety of online savings back over the last decade or longer and had no issue. As long as it’s FDIC insured I wouldn’t worry. I do look at user reviews for the bank at before committing and I avoid those that have too many negative reviews. You can also get information about the financial health for them at the same website.

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I look them up on the FDIC site here:

and then follow the link from that website

Just about the biggest online only bank is Ally. I’ve had a savings account with them almost 10 years. I think I’m getting 4.5 percent now. My local brick and mortar bank (United) pays .05%?

Okay, sounds like I am over thinking. For whatever reason in the universe, I started getting two offers /day in the mailbox, and dozens in my email.

Surely these b/m banks know online is eating their lunch? Or maybe savings is so small in their scheme of things it just doesn’t matter.

Moving my money in the next few days - appreciate the feedback.

Another option for your cash is a Money Market fund. I have had cash with Ally bank for many years but several years ago, when the yields of Money Market Fund yields exceeded the yields of online banks, I moved the bulk of my cash to the Vanguard Treasury Money Market Fund
The fund is safe: the fund invests in US Treasury Bills and the current yield is 5.29%.

Laurel Road has been around a long time. I’ve never used them, but heard good things about them.

If you’re worried about banking with someone you’ve never heard of, American Express is paying 4.25%. Presumably you’ve heard of them.