Online Banks Are Healthy, Growing, & 100% Safe

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Hiding Piggy BankSo far, 145 banks and thrifts have been closed by regulators since the start of the credit crisis in 2008. One hundred a forty five. Every Friday, when the FDIC usually announces closures, for the last two years, we’ve expected at least one bank to fail… sometimes two. Last week, five banks failed, bringing the 2009 total to 120.

Scary huh?

So you might be surprised to learn that not a single one of those failures was an online bank. In fact, the last time an online bank failed was back in 2007 when NetBank of Alpharetta, GA was closed. It was acquired by another online bank, ING Direct. Many people would have you think that your money is safer earning 0% at your local bank than 2% at an online bank.

So let’s change the pace of the discussion a little more, let’s talk about some good news. Everbank, one of the online banks I follow, recently announced that they acquired Tygris Commercial Finance Group, a commercial finance and leasing company. It will give them hundreds of millions of dollars of capital to grow their bank. They offer high interest rates on their savings accounts not because they need deposits to stave off failure, they offer high interest rates because they run a lean operation and can pass along those savings to customers. All online banks do this.

As an aside, Everbank is one of the most interesting of the online banks because they offer so many products other banks don’t. One prime example? MarketSafe FOREX Certificate of Deposits. No other bank I know of offers something like that. Does that make it a good investment? Not necessarily, but the option is there.

Another plus, Everbank offers a guaranteed interest rate of 2.51% for the first three months, putting it at the top when it comes to high yield savings account rates.

All of the online banks I ever write about on Bargaineering are FDIC insured up to $250,000. The FDIC insurance program protects your money so that even if the banks were to fail, you’re protected. If it’s protected by the government, why not go with the best interest rates available?

Other banks, especially brick and mortar ones who can’t compete, and mainstream media, who rely on fear to sell news, would have you believe that online banks are dangerous. They point to the 5% APY CDs once offered by Washington Mutual, saying high yields are a sign that a bank is going under.

It’s false. The reality is that online banks are stronger than ever, expanding and growing, and perfectly safe. Don’t believe the hype.

(Photo: corrieb)

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42 Responses to “Online Banks Are Healthy, Growing, & 100% Safe”

  1. I wanted to know if anyone considers integration with, Quicken, or MS Money to be important when choosing an online bank? I’ve been using ING for a while because they make it easy to create subaccounts for savings. But recently they started blocking and other users on their forums claim the same is happening for Quicken and MS Money users.

    According to Mint and others, its because ING considers these sites to be unsecured “aggregators” which, in their opinion, pose a risk to their customers. Therefore, they’ve blocked the access and customers are forced to use that horrible web interface.

    I’m wondering if anyone has had good experiences with other online banks in combination with financial tracking & planning tools like Quicken, Mint, and MS Money. I’m willing to switch banks if the same features can be found elsewhere.

    Any thoughts or advice is appreciated!

  2. aua868s says:

    i “discovered” ally bank….thanks to Jim and his wonderful posts!

  3. daemondust says:

    Saw a commercial yesterday for Ally, calling themselves new. How can they do that since they’re just a rename of GMAC?

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