Wednesday, October 05, 2011

The History of Online Savings Rates

Countless financial institutions offer consumers access to online savings accounts. These accounts are geared toward the younger, more sophisticated mobile crowd and offer features most likely perceived by that demographic as advantageous. While many aspects of banking exclusively online can be beneficial, disadvantages do exist. The historical interest rates of these accounts has fluctuated in correlation with the federal funds rate and the state of the nation's economy.

Online Savings Accounts


As technology continues to improve and the pace of the average consumer's life increases, more people turn to online banking for the efficiency and convenience it provides. Most major banks offer account holders online access, and some institutions exclusively exist online with no physical location accessible by the public. These online entities, or Internet-only banks, offer customers an experience that may dramatically differ from traditional banking.

Advantages of Online Accounts


Since Internet-only banks do not have the same expenses as ordinary brick-and-mortar branches, most online savings accounts offer significantly higher interest rates than local institutions. These banks tailor their websites to a more technologically sophisticated consumer and usually offer solutions for a multitude of mobile devices. People with schedules that prevent regular computer access can view account balances and conduct transactions on the bank's website using their phone's web browser or with a small program downloaded to their device.

Disadvantages of Online Accounts


Consumers who are not familiar or comfortable with accessing their financial information over the Internet should avoid these accounts. Those with limited computer knowledge or below-average Internet experience may find it difficult to navigate the bank websites or interact properly with the online software. Many websites are optimized for mobile users, and developers may take for granted the public's ability to easily locate essential information and conduct activities. Inexperienced users may have difficulty determining what buttons to press and links to click to achieve desired results. Additionally, online savings accounts can be accessed only from computers or mobile devices connected to the Internet, possibly preventing consumers in remote areas from participating.

Interest Rate History


According to The Sun's Financial Diary, a personal investment blog focusing on current events and individual financial issues, online savings account interest rates have steadily declined during the past several years. In 2007 these interest rates were above 4 percent, but recent economic difficulties in the financial industry and across the nation have resulted in significantly lower crediting rates. These so-called "high yield accounts" now maintain average interest rates of barely 1 percent.

Interest Rate Projections


Unless the economy of the United States makes a complete u-turn, it is highly unlikely that online banking interest rates will change. Despite the lower expenses typically incurred by Internet-only financial institutions, the crediting rates for online accounts are directly affected by the state of the economy and a multitude of other factors, all of which are beyond the control of consumers.

References

PF Stuff: Online Savings Accounts
The Sun's Financial Diary: Online Savings Account Interest Rates History
SavingsAccounts.com: Three Key Benefits of Online Banking

Article originally published on NYSE Euronext (10/05/2011)