Best Online Banks for Emergency Fund

September 9, 2009 by Frugal Dad

mergency funds savings, I subscribe to the theory “out of sight, out of mind.” Saving money at online banks helps to protect me from myself, as a recovering spendthrift. Our emergency funds are safely stashed at online banks if I need them, but not too accessible in the event I declare not having a plasma screen the week before college football season kicks off an emergency.

Online savings banks were all the rage just a couple years ago. It wasn’t unusual to score a 4 or 5 percent interest rate on online savings accounts. Today, the “high-yield” from high-yield savings accounts has all but been obliterated. Still, there are a few good deals at the best online banks, if you no where to look.

If you are like me, and have only a modest amount to save, one of the following online banks might be your best bet. I’ve listed them in no particular order after the first one (ING DIRECT is still my personal favorite, despite their relatively low interest rate).

ING Direct

ING DIRECT (1.40% APY).I’ve had an ING Orange Savings Account for over two years now, and have to say I am very pleased with the product. We currently have a number of accounts there for targeted savings goals. While higher interest rates can be found elsewhere, I value the ease-of-use from their online interface.

EverBank

EverBank (1.77% APY for the first year).EverBank’s Yield Pledge Money Market Account offers the highest interest rate of the bunch. The 3-month introductory 2.51% APY is an even sweeter rate, but it only lasts those first few months. There are a couple limitations to consider. EverBank requires a minimum deposit of $1,500, and in any month where your balance drops below $5,000 you face an $8.95 fee. That shouldn’t be a problem with most fully-funded emergency funds, but it is worth noting.

WT Direct

WT Direct (1.66% APY for 60 days). WT Direct also offers a solid interest rate, but with more caveats than other banks. While they do not require a minimum deposit, or charge fees based on your balance, they do offer a lower tiered interest rate for accounts with less than $10,000 (1.66% APY vs. 0.15%APY). If you have over $10k in your emergency fund, WT Direct is a solid option.

Ally Bank

Ally Bank (1.75% APY).The high-yield savings account at Ally Bank is a very attractive option, with no fees, no minimums, and no convoluted tiered rates based on your balance. Another nice feature is that they compound interest daily, rather than monthly or quarterly, as many other banks do. Ally Bank is also a leader in high-yield CDS, which provides yet another option for a portion of your emergency savings (check out the no-penalty CD to avoid paying fees to transfer money out in an emergency).

Again, the most important benefit of saving emergency fund money at an online bank is that is separated from your everyday accounts, limiting the opportunities to spend it away on non-emergencies. I still like the idea of keeping a local emergency fund of $1,000 or so tucked away at a local bank or credit union for smaller emergencies. This smaller, local emergency fund provides quick access without having to wait a couple days for online transfers.

*APY figures quoted are accurate as of 9/7/2009, but variable rates can change frequently

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