Most savings accounts offer less than 1% right? Why do internet savings accounts offer closer to 4% right now?
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The previous posters have it correct. It is mostly because the overhead of having a brick and mortar building and the extra cost that are associated with it. Online banks will still have employees, so that really isn’t a factor. Competition is profit are other reasons. The online banks have to compete with every other online bank as well as the local banks, so they must offer better rates. There are many people who are still afraid of online banks, so the brick and mortar banks don’t have to offer the same competitive rates. As for profit, a local branch’s customer base is just the local clients it has and must squeeze all the profit out of them. Whereas an online bank came bring in clients from all over the world, so there margins can be smaller and still make the same profit.
However, with the Fed lowering rates, neither of these options looks that attractive for saving money. These rates will barely beat inflation, which means you are really losing money (or at least buying power). Let me suggest you look at this article for an option at getting a higher return on your money, http://www.thefinancialfitnessclub.com/a...
Their overhead and payroll expenses are much lower, so they can offer higher rates. They don’t pay for rent, utlities, etc because they don’t have a physical address.
Because they are online savings accounts. It’s a lot less expensive to service virtual accounts.