What I learned about ISA's

Posted By Paul

I first heard about Internet Savings Accounts (ISA's) through an article on CNN.com. The article spoke of much better interest rates than my bank savings account offered (which wasn't hard), so I did some research and found them to be an interesting savings vehicle. Here is what I learned about them:

What exactly is an internet savings account?
Internet Savings Account is the term for a type of savings account that is offered by several internet-only banks. An internet-only bank is a bank that you can only access through the internet and phone. With an internet bank there are no branches that you can walk into and do business.

Why are people so excited about them?
The main allure of an internet savings account is the fact that you can store your money in a safe, FDIC-insured account, just like a savings account at your local bank or credit union, but with a considerably higher interest rate. As of this writing, most internet savings account were offering interest rates over 4%.

If there are no bank branches, how do I open/fund an account?
The account is created online with a link to a conventional checking or savings account at your local bank or credit union. You then transfer money between the two accounts using an electronic transfer initiated at the internet bank's web site.

What are the downsides?
The main downside is the fact that there is no branch you can walk into if you want your money or need to deal with a problem. All communication needs to be done through email/phone and if you want your money, the electronic transfer to your local account can take a few days. However, as long as you're okay with that, then the ISA is a great option for savings.

Where do I get one?
Remember that an ISA is a type of account, and they are offered by any number of internet banks. To find one, just google +internet +savings +account and plenty of choices will come up. Many internet banks offer no minimum to open, so you can start saving whenever you want.

Anything else to look for?
Personally I suggest going with a well established bank that you've heard of, just to make sure that you're not going with some fly-by-night operation that may disappear tomorrow. I chose ingdirect.com which is one of the more well known companies offering internet savings accounts. I've been with them for a while and I really like their page and the account works great.