I received a promotional offer from CapitalOne where they are offering 1.00% interest rate for deposits above 10K. I wanted to know how safe is such investment with online banks vis-a-vis regular banks? Also - is their any downside to such investments? Thanks.

  • I've been using a "high interest" online savings accounts for about 15 years. Never had any problems, although I have not used CapitalOne. – Pete B. Mar 24 '17 at 19:05
  • I'm not sure that I'd call 1% interest an "investment" in any real sense - that's less than inflation. – EJoshuaS - Reinstate Monica Mar 24 '17 at 19:17
  • I interpreted "online bank" as one that only exists online (no physical branch locations), like Ally bank. Capital One has tons of physical locations. – Andy Mar 25 '17 at 14:04
  • Yes, I'd assume 1% is not a high rate and not an investment, but it is better than 0.02%, isn't it :). – V_Singh Mar 25 '17 at 21:10

I wanted to know how safe is such investment with online banks vis-a-vis regular banks?

As far as I know, neither money market accounts nor savings accounts have any investment risk (within reason) since both are insured by the FDIC. Note that this is not necessarily the case with money market funds.

is their any downside to such investments?

Yes, there are a few. I believe the two biggest ones are:

  1. High minimum balance
  2. Limited transfers
  • Another downside is that 1% is not really 'high'. – Aganju Mar 25 '17 at 15:03
  • It is compared to most savings accounts. I know discover's is around 1% though – Nosrac Mar 25 '17 at 15:19
  • Yes, but compared to other 'investments', it is poor (yes, therefore it is secure, but it is a potential downside of this investment compared to others) – Aganju Mar 25 '17 at 15:24
  • You are absolutely correct. The first question OP asked was specifically savings and money market though – Nosrac Mar 25 '17 at 15:27
  • Thanks. I have some amount that is just lying around in the savings account without really generating any interest on it. So better to move it to such money market account where I stand to get very high (compared to savings rate) interest rate. I do understand its not really an investment, but I am not very sure about the type of investment I can do with this money and don't have any timeframe in mind as well. So my current criteria is to get higher returns with high liquidity and less risk :) – V_Singh Mar 25 '17 at 21:12

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