Online savings account

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An online savings account (OSA) is a savings account managed and funded exclusively on the Internet. OSAs are often characterized by high yields, which far surpass those of traditional savings accounts. By eliminating paperwork and reducing overhead costs, banks are able to pass the savings onto the customer by offering an annual yield that, in some cases, exceeds 5%. In comparison, the United States national savings average is currently 0.54%.^[1]

[edit] Features

OSAs, which are being increasingly considered as part of a larger investment strategy, offer yields that currently compare favorably with stocks and bonds, as well as the liquidity of a savings account, the convenience to transact online, and FDIC insurance (to the maximum permitted by law). Many of these high-yield accounts have no fees, no minimum balance, and no lock-up period. Account holders may link their OSAs to their existing external bank accounts for easy transfer of funds between multiple accounts. Some, like FNBO Direct from First National Bank of Omaha and HSBC Direct from HSBC Bank USA, N.A., also offer ATM cards so customers can directly access the funds in their OSAs.

[edit] Changes in banking and investing

OSAs, combined with rising interest rates, have made cash an increasingly attractive investment option. They provide a risk-free option for investors looking for a safe place to park their money, especially in uncertain economic times. Inflation, stagflation, recessionary fears and stock market volatility are among the economic indicators that have encouraged more and more investors to consider cash as a way to balance their portfolios. In fact, more than 8.5 million customers signed up for OSAs with leading U.S. banks in 2005 alone and some industry experts estimate the Online Savings Account market will triple in size, from $250 billion to $400 billion by 2010.^[2] ^[3]

OSAs can also be attractive to financial institutions with credit card portfolio holdings. In cases where a ratio of cash savings reserves to credit card portfolio debit is set by law, financial institutions may choose to offer OSAs with higher interest rates yet have lower maintenance costs as a way to increase savings reserves. With more money on hand obtained these savings accounts, the financial institution may now be free to increase its profitable credit card debt portfolio.