Niagara Gazette

Web Extra

July 29, 2013

Online banks may help you boost your savings plan

Putting money away for a rainy day appears to be one of those quaint notions of the past, like Sunday dinner with the family or a hot meal on an airline flight. Currently a growing number of people live paycheck to paycheck. An unexpected expense can be catastrophic.

According to the U.S. Commerce Department, in 1970 Americans saved around 10 percent of their disposable income – disposable incoming being what is left after paying taxes, mortgage, insurance and other fixed expenses. In January 2013 the savings rate was down to 2.2 percent.

Data compiled by financial website NextAdvisor.com shows the average U.S. household has only $3,800 in savings. More distressing, 25 percent of households have no savings at all.

Saving money, of course, starts with a budget. You have to track your income and expenses and end up with a positive balance at the end of the budget period. Cutting expenses and increasing income will increase the amount of money that can go into savings.

Where to put your money

But where do you put your savings? Banks now have minimum deposit requirements and a host of fees that have discouraged some from opening savings accounts. The paltry interest paid is not much of an incentive either.

Polina Polishchuk, an editor at NextAdvisor, suggests looking at opening a savings account in an online bank. Unlike a traditional bank, she says online banks are more consumer-friendly.

“That's why we were for online savings accounts,” Polishchuk said. “They don't have fees. There's no minimum balance requirement, or requirements for how much money you have to deposit into the account every month. And the interest rates they pay are much higher than regular banks.”

They do pay a higher interest rate – though it can be considered high only in comparison to what traditional banks pay. The annual percentage yield (APY) is still under 1 percent. Still, it beats what the big banks are paying.

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