Joe's and Joette's get ready to learn where I put some of my funds and why. Just a disclaimer, I am just sharing my person experiences and I am not Qualified to give financial advice. Had to put that in, so let's dive in.
Many of you reading this, are scracthing your heads because you've probably never heard of an online bank. I was in the same boat until two months ago. So what is an online bank? An online bank is a bank that does not have physical branches (some may have just one or two). Every transaction is done via their website, app or by phone. Capital One offers a hybrid bank account (mostly online with limited branch interactions) called 360 where you get no fees and handle everything online or through the app but you can still deposit money at a branch. I have a co-worker who has a 360 account and it's not that bad. They offer an APY of up to 1%, but you can only take advantage of this rate if you have a hundred thousand dollars in your savings account. For amounts under twenty five thousand dollars your APY is .20%. Sounds good right, except it's not enough interest for me.
I have to start a new paragraph because I can already read your mind. You're thinking that this interest rate is high because your current bank offers anywhere .01-.05% APY. What if I told you that there's are savings accounts out there that offer 1.9% APY. Most would say that it sounds to good to be true. That's what I thought because my personal savings account is maxed out at .20% APY. Well I stood corrected when I was on the American Express website and saw a button that said Savings and CDs. American Express was offering 1.9% APY with no minimum requirements. I immediately opened an account and funded it. Wait, I know that you were about to go and open an account of your own but wait a second. This account is not like your average bank account because the money is not easily accessible. There is no debit card so you can't take money out at an ATM. There are no physical branches so you can't walk in and take out money. The only way you can take out money is by submitting a request either by phone or online. You then have to wait 5-10 business days for a check to come in the mail. Other than that it has the normal rules such as you are limited to a maximum of 6 withdrawals a month.
But Josh that's a lot of restrictions. Is there a way I can have a high APY no matter what my balance is and have the convenience of a traditional bank? Well I'm glad you asked because there is another bank that I use that answers yes to both questions. Ally Bank offers 1.9 APY and has a checking account option. You can get a debit card and it even has Quick Pay with Zelle. The only reason I didn't start with this one is because I learned about Ally Bank a week ago. So did I close my American Express account and open up an Ally account? Nope, I kept my American Express account and opened and Ally account. Why, there's two big reasons I'm keeping both accounts. The first is the APY is variable on both accounts meaning it can go up and down at any moment. The second reason is the FDIC only insures bank accounts up to two hundred and fifty thousand dollars per account. If you have multiple accounts they are all insured. So if you have 4 accounts you can have a million dollars insured by the FDIC. I know that I have no where near a million dollars in my accounts but one day I will.
After reading this entire post you want to know if an online bank account is for you. If you don't need instant access to your money and want your money to grow close to the average rate of inflation, then an online bank account is for you. If you need access to your money but still want a decent APY then Capital One 360 is for you. If you want one on one relationship with a banker then your better off with a traditional bank account. Just remember there is no one size fits all. Traditional bank accounts give some perks that you can't get with either online or hybrid accounts. My traditional account gives me free trades on all of my investment accounts, a free safety deposit box and a bunch of other perks. There's also the free coffee (best perk ever). So do your own research before fully commiting to something.
Final disclaimer! I am not a trained financial advisor. I am only staying my personal opinion and your results may vary.