Online Savings Bank

If you’re looking for something to do with your precious personal finances, you have probably considered various savings products. You may already be familiar with conventional High Street bank savings accounts but in contrast may have wondered what on earth is an ‘online savings bank’? Some banks operate through a mixture of conventional bank branches, telephone centres and the Internet. They may describe their Internet operations as ‘an online bank’. Some other banks operate exclusively through the Internet and they may refer to themselves as ‘an online bank’ also. Few if any banks continue to operate exclusively via the conventional high-street outlet. So how do you find which Internet savings account may best suit you? Well, first of all, the amount of interest they pay will be an important consideration. An important factor in deciding how much interest a bank can pay on savings is something called ‘the cost-to-serve’. The ‘cost-to-serve’ is essentially how much it costs the bank to administer, operate and manage your funds while in their accounts – in other words their overheads.

To take an example; two people deposit £25,000 each in the same bank into an identical savings product. If one of the clients always makes deposits, withdrawals and transfers through the Internet online, this will typically be a considerably lower cost for the bank to administer and manage than the other client who always comes into a bank branch and needs to be served by a staff member. For conventional banks, the High Street branch outlet and the staff in it are often expensive to run and operate and they would probably love to increasingly deal with clients over the Internet. As such, they may well offer you a preferential rate of interest if you deal with them over the Internet rather than through a physical bricks-and-mortar branch. The banks that operate exclusively over the Internet don’t have this ‘challenge of persuasion’ to begin with – nor do they have the problem of needing to maintain a large and expensive conventional branch network. This means that they can usually afford to pay a better rate of interest on an internet savings account than their High Street competitor.

Using an Online Savings Bank

• Many conventional banks now offer special deals and rates for customers that apply for and subsequently manage their savings online - it's a form of incentive. You may not get the same deal at a branch of the same bank;
• As the exclusively Internet-based banks do not have the overheads of a large conventional bank branch network, they may be able to offer returns that are better that those through the Internet arm of one of the conventional banks;
• Using an online savings bank may not only offer you better terms and interest rates but of course also considerable time saving and convenience;
• It may be difficult to identify the right online savings banks and their products. You may find it beneficial to contact an Internet based specialist provider of financial advice and services to ask them for help;
• Your mind could be put at rest by ensuring that any deposits you make into an online account are covered by the UK government's guarantee schemes.