I’ve always mentioned I have a pretty good nest egg savings. I consider it my emergency fund or my @#$% you fund as some people like to put it.
The fact is though, for it to be an emergency fund, it needs to be pretty liquid. It needs to be available when I need it. It can’t be locked up in an investment strategy.
Nest egg savings; Using Bankrate.com to do some research.
I was looking through a financial magazine the other day and noticed an ad for an online bank boasting about a high APY.
I read the fine print, and it said it rated high on a bankrate.com rating system. So, I jumped on over to bankrate.com to see what it was all about. What I found was a wealth of information comparing different banks and other financial institutions. The tools and comparisons on this site kept me busy for a while.
Here is a link if you want to check them out for yourself. You’ll probably spend hours there like I did. So, what did I find?
Nest egg savings; Online banks better than brick and mortar.
It appears from what little research I did; that online banks can outperform brick-and-mortar banks in a bunch of different ways. It all boils down to online banks having less overhead.
One physical location can supply enough manpower to keep the entire business running; while your local brick-and-mortar bank will usually have different locations and more employees to fill those locations.
In turn, they can offer better rates and better services because they have less overhead. I think the only this holding them back is the stigma of not having a place someone can walk and talk to someone. For old-school people, this can be a real scare.
“I mean, what happens if the internet breaks or the bank fails? How will I get my money?” These banks are FDIC-insured in case of a bank failure, so you are probably as protected as your local brick-and-mortar, but the stigma still exists. The other good thing, so I read, is they have excellent 24 / 7 customer service. This is more than I can say for my local credit union.
Nest egg savings; Savings are less liquid than checking.
As I mentioned above, a savings account is naturally less liquid than a checking. Checking accounts can be accessed through debit cards and checks. Savings accounts are accessed through the internet, which is pretty liquid.
Most banks and credit unions have online access to manipulate your money. You can go in and initiate an EFT at any time of day. Some may have a delay until the money shows up, but it is usually pretty fast. My credit union usually has about a day delay in processing a transfer. Sometimes it takes up to the next business day to initiate a transfer on the weekend.
This isn’t quite as fast as popping down to your local ATM, but for an emergency fund, how fast do you need it? I can always manage with a credit card or cash until my bank opens Monday morning. Besides, regular savings accounts offer way better rates of return than checking accounts. For me, the liquidity issue isn’t even an issue.
Nest egg savings; Watch out for minimums and fees.
This is where these banks can make some money. The small amount of money you will earn in your savings account can be eaten up by fees if you’re not careful. I’m afraid to admit it, but this happened to me years ago when I had a small money market account.
The bank had a change in policy, and my account fell below the minimum limit. The bank ate my money faster than a Vegas slot machine. It was horrible. The bank said they notified me of the changes, but somehow it got lost in the shuffle. When the dust cleared, they had taken a pretty good chunk.
I withdrew the rest of my funds, closed the account, and went home to lick my wounds. Never again will this happen to me. Just keep a good eye on your accounts and read all the fine print so this doesn’t happen to you too. That will sting, especially if you are as frugal as I am.
Nest egg savings; They limit your withdrawals, but it’s only for emergencies.
The other thing with checking accounts is that they limit the number of withdrawals you can make per statement. This is usually always monthly, but read the fine print and make sure. This is not a big deal either because it is only an emergency fund, but nonetheless, it’s a good thing to be aware of.
So, if you are working on creating an emergency fund, and I hope you are, check out the advantages of using an online bank to house some of your nest egg savings. I was astonished and somewhat embarrassed that I had let a little extra money slip through my fingers all these years so quickly.
All it would have taken was a little time to do some research, open an account, and move some money over.
Till next time, be safe,
Kevin