The 20th century has changed the concept of savings of human earnings. With the onset of computerization and globalization, the outlook of the
average man has changed totally. Gone are the days when only the financially average and above average individuals could hold an online savings
account, at a bank round the corner. In the present internet world, banking has also undergone a sea change. Today we have online banks offering
online saving accounts. Banks having this facility (and nowadays every big bank has this facility) give excellent service to their clientele. Thus,
there is a transformation from Banking hours to Virtual banking. No long queues, no waiting, no counting of cash, access to
denomination of our choice, etc. Added to this, there are other advantages like transfer of funds in an easy, fast and commercial manner with
Card-to-Card transfer facility using Visa Money and MasterCard transfer service. Another advantage is the automatic transfer of extra savings
through standing instructions to FD accounts, mutual funds, Life and General insurance accounts. This is in addition to attractive features such as
Personalized Check book, Free Pass Book, statements of account sent via mail or email, etc. Some of the facilities a customer enjoys with Online
saving accounts and Internet saving accounts are International Debit Cards, which give access to ATMs and also special discounts on Home and
Personal loans and payment of utility bills.
One must not however forget that, the main difference between the manual or regular banking (in a banking hall and by the staff) and online banking
is the safety of personal data and the customer’s funds. Identity theft is a major worry. Almost all institutions/banks insist on the customer using
web browsers that support 128 – bit encryption for any online transaction, as a measure to prevent theft. However, one has to be very careful in
choosing the bank, and limit the deposits, to prevent total loss in case the bank fails.
A lot of time and energy are to be spent, before one can begin to invest in Internet Savings Accounts. Exhaustive study and comparison has to be done between different banks because the customer can easily end up by being hooked by the wrong bank. “As many pitfalls, so many benefits” is an
adage one should remember. The yardstick is the APY or the annual percentage yield of the bank, because those accounts that compound more often, have the highest APY, and give the best deal.
While approaching prospective customers, banks claim that there are no hidden fees or charges, but it is not always true, and one has to be very careful. Every internet savings account will have different terms, and they fluctuate wildly. Therefore to avoid problems, it is all the more important to reduce everything into black and white. With scamsters always ready to play a silent but powerful game, it is always advisable for the prospective account holder to speak to more than one executive of the bank before signing up, since the agreement binds one for a long time.
High yielding saving accounts: the term HYSA is just a way of saying it is an online savings account – ideally a competitive one. The perk to these accounts is that typically one will enjoy a higher APY. To qualify, one has to to meet at least one of the following conditions – make a sufficiently large initial deposit, maintain the balance for a long period, maintain a minimum number of transactions, or maintain other banking relationships. Banks generally offer high yielding savings accounts to their valued customers only.
An online savings account that offers a competitive rate of interest in exchange for a larger than normal deposit, is defined as a money market account, and is also known as MMDA – money market demand/deposit account. These accounts do not require a lot of cash to get started. These MMDAs place restrictions on the number of transactions (withdrawals) one can make in a month (like five or less). Furthermore, one has to maintain a certain balance to receive the higher rate of interest. Banks and credit unions offering money market accounts are insured. This means the depositors’ money is safe.
Interest on MMDAs is normally compounded on a daily basis, but the payments are done once a month. Interest rates that are paid by MMDAs can vary from one bank to another. This can be pointed to the simple factor that some banks have pressure to open a larger number of accounts, and they offer
attractive rates of interest than other banks do. Another feature of these MMDAs is: the more amount of money there is in your account, higher is the rate of interest. Just as basic savings accounts, MMDAs would let its customers withdraw money whenever they need it. The customer is provided with a check book, a statement of account (or a pass book). However the number of withdrawals per month is restricted. In case the withdrawals exceed the permissible number or if the required minimum balance is not maintained, a fee is charged by the bank.
When anyone deposits money into the money market in the form of an online savings account, there will eb interest earned on that deposit. Interest is paid by the bank to you and the money deposited by you is used fund loans to others. However, the depositor is not limited from withdrawing the funds whenever he needs them. This is how the banks and other financial institutions make money – by trading money!
The basic process of banking works in the following manner: a customer opens an account with the bank, deposits money, the bank pays him interest on that deposit, the bank then lends it to other customers, of course at a higher rate, and the difference in interest which the bank charges the borrower and the interest the bank pays the depositor is what the bank earns and how they stay in business.
In general, interest is paid or charged – paid for depositing and charged for borrowing. When borrowers need money, or sometimes even when governments need money, they borrow from banks. Thus those who bank with banks and have money market or savings accounts become lenders. Interest rate is the factor that plays an important role in banking.