Because interest rates have fluctuated quite substantially from bank to bank in the last year, consumers are finding themselves having savings at banks and credit unions which used to have some of the best interest rates around, but no longer do. Some banks are offering above market rate interest rates to their savings and CD customers so that they can get an in-flux of capital, while others have less of a desire to attract new customers don’t have as competitive of an interest rate.

The first place many savvy consumers head to when shopping for a new certificate of deposit or savings account is BankRate.com. With IndyMac and Bear Stearns recent failures, consumers want to ensure their money is at institutions with solid financials. BankRate offers a listing of interest rates on varying types of accounts as well as a rating system to give consumers an idea of how healthy the bank is financially, unfortunately, it cannot be trusted.

Consumer advocate, Clark Howard, recently reported that before IndyMac’s failure, it was a pretty loosely held secret within the banking industry that IndyMac was facing severe financial trouble. Up until the day that IndyMac closed its doors, it had a “Superior” rating according to BankRate.com’s “Safe & Sound®” rating system.

The Safe and Sound® rating system that BankRate provides might offer some insight as to the health of a bank, but it’s not be be-all and end-all. In order to make sure your money in savings is secure, you need to do two things. First, make sure that the bank is a FDIC member of a NCUA member. This will provide insurance if the bank fails and provide you up to $100,000 of coverage. Special situations exist where that number can be raised. The second thing you should do is never keep more than $90,000 inside any one bank. This ensures that your principal and interest will be protected.

You shouldn’t be terribly concerned about bank failures, because they are such a rare occurrence. The FDIC usually provides you access to your funds within a period of 24 hours anyway, so it’s a very seamless transition for you. Just ensure that your bank is a FDIC member or NCUA member and that you don’t keep more than $90,000 in any one bank and you’re good to go.

If you asked an individual a decade ago whether or not they would trust their hard earned savings in some account with out a branch that you can only get to on the computer, chances are they would laugh at you. People want to feel that their money is safe and that they can get it if they really need it, so the idea of an online savings account is really counterintuitive to the human thought process. In the last decade, commerce on the internet has exploded. Consumer purchases through the internet are now common place, and very few people think anything of it when buying, selling, and transferring money online. The fears and worries related with doing business online are going away at a rapid pace, which leads us to ask, is it time to move to an online savings account?

Let’s consider the benefits.

Higher Interest Rates – You’ll be lucky if you find anything over 2.00% APY for a savings account in your home town. Bricks and mortar banks have a lot of fixed costs they have to pay for their branches that online savings do not, which enables them to offer a much higher interest rate. With a good online savings account, you can easily earn anywhere from 3.00% APY to 3.75% APY depending on where you open an account.

New Account Bonuses – A lot of online savings banks will offer you a bonus just for signing up for an account. This is true for a lot of bricks and mortar accounts too, but much more frequent in the online savings world because of the very high competition for people’s business. About the best bonus going around right now is the new sign-up bonus for ING Direct. You can get $25.00 if you can get an existing customer to send you an invitation email.

Lower Fees – Many online savings banks, such as ING Direct and Emigrant Direct, offer literally no fees and no minimum balance to speak of. Not all online savings banks have a great fee structure, but a lot of them do. If you shop around you can find an account with no fees to speak of.

Instant Access – When you are dealing with an online savings account, you always have instant access to your account as long as you have an internet connection. Just sign-on and you can transfer, withdraw, or do just about anything with your money.

Banking From Anywhere – With an online savings account, you don’t have to be in a town where your local branch is, rather all you have to do is just sign online and you have instant access to your account.

FDIC Insurance – You know your money is protected because these banks are FDIC insured. If the bank were to go under for whatever reason, you would still have access to your money, which is always reassuring.

Security – Some people fear putting their personal information online because of rampant instances of identity theft, but online savings banks have some of the best internet security around. They use a combination of secure connections, mouse-based pin-entry, site-images, security questions, and more to keep unwanted individuals out of your online savings account.

What about the down sides?

Online savings accounts really have some excellent features, but there are some downsides that one should be aware of.

Not As Immediate – When you withdraw money from an online savings account, it has to be sent back to your checking account through an EFT transfer, which can take 2-3 business days. If you need your money in a pinch, this might be an issue. There are some banks that offer an ATM card with your online savings account so that you can get to your money fast if you need to.

Technical Difficulties – If your internet happens to be down, or if the online savings bank’s website isn’t working, you can’t get to your money. Be sure to sign-up for an online savings account with a history of not having major technical problems.

Lack of Tellers – There’s no branch you can go down and visit, rather you have to call an 800 number if you have a problem with your account. If the online bank you go to doesn’t have great customer service, this could be a problem. Be sure to ask people who have used the account whether or not they have had good customer experiences before signing up for an account.

The Verdict:

Online savings accounts still have a few minor downsides, but they can be largely avoided if you get a good account. When you look at the amazing interest rates offered by online savings banks as well as the low fees, new deposit bonuses, and 24/7 access to your account, there’s no question. Online savings banks are the wave of the future and excellent places to put your money.

Have you ever considered why you chose the bank that you bank at? Was it because your parent’s bank there, it’s close to your house, or that it was the first place you stopped at? Most of us end up banking at large mega-banks with billions of dollars in assets, even though these types of banks offer some of the worst deals out there when it comes to savings and investments.

These major mega-banks are not terribly concerned that average Americans with average incomes become their customers, rather they put their emphasis on scoring big accounts because those are much more profitable to hold. Many of them don’t put much of an effort in the products they create or the marketing that they do for the average customer.

Many of these banks have very lousy products for the average consumer, especially when it comes to savings accounts. Wells Fargo is offering a meager 0.05% on their standard goal savings. Bank of America is offering a 0.2% interest rate on their regular savings and Wachovia is offering 0.15% on their “Premium” savings.

Most of these banks have very lousy checking accounts as well. You might get a free checking account with the first set of checks for free, but that’s about it. No ATM refunds to speak of, no free checks later on, and if you want to just about anything out of the normal, you’re going to end up paying a fee to make it happen.

There are so many better options when it comes to your checking and savings accounts, especially when you shop for them online. There are a number of banks, such as HSBC Direct, ING Direct, Emigrant Direct, IGO Banking and E-Loan that are offering high-yield savings accounts to their internet customers offering rates anywhere between 2.75% and 3.50% APY. Corus, the curent leader in online savings accounts, is offering 3.85% APY on savnigs, which is 77 times greater than that of what Wells Fargo will give you for a basic savings account.

When it comes to checking accounts, you probably won’t earn a dime in interest from any major bank, but when you go online you can easily get from 3% to 4% APY on the money that’s sitting in your checking account. Some of the accounts available will even refund any ATM fees that you incur!

Major mega-banks have been giving their regular customers a raw deal for far too long, if you still keep your money at one of these banks offering you an abysmal savings rate, it’s time to move your money.