Check Out Online Accounts to Beat Passbook Savings

So your money is still rusting away in an old-fashioned savings account, collecting a paltry one-half of 1 percent interest? OK. Take a deep breath and consider opening an online account to start beating inflation again.

In case you missed the massive advertising campaigns by ING and HSBC, to name just two banks, online savings accounts are still offering interest rates many times what you get with a traditional passbook account.

ING is offering 4.75 percent on new deposits to its well-known Orange online accounts through April 15, after which they pay 3.8 percent. HSBC is offering 4.8 percent through April 30 and 4.25 percent thereafter. Regional savings banks are wising up too.

Emigrant, a New York savings bank, offers 4.25 percent on its American Dream online account, which can be opened from anywhere in the U.S.

Compare those rates with traditional savings accounts: 0.25 percent at HSBC or 0.5 percent at Bank of America.

Other advantages for banking online: The accounts often require no minimums and have no fees, so you can take advantage regardless of your financial status.

Typically, you link a checking account to the online account and transfer money in and out as you please or set up regular transfers. Some banks, like HSBC, give you an ATM card for the account. Others, like ING, do not.

The high rates being paid are due to a combination of current interest rates plus the savings that the bank reaps for doing business entirely online and fierce competition among commercial banks right now.

"The cost of acquiring new customers and maintaining those relationships in an online environment versus bricks and mortar is significant," says HSBC spokesman Stephen Cohen.

For banks like ING or HSBC, which aren't household names in the U.S., the accounts are a good way to promote their brand and pick up new customers.

If you still have a passbook account because you don't trust the Internet, you're not alone, says Tracey Mills, a spokeswoman for the American Bankers Association.

Americans choose their banks based on convenience, not high interest rates, and most still prefer banking at a local branch, where they can get some personal attention from a live bank employee.

But those employees, and the branch in which they work, are keeping your interest on the ground, which means your money is losing value to inflation.

So what are the disadvantages of these online savings accounts? Some banks don't make deposits available for several days and you'll never get to see that live bank employee: everything is done by phone, mail or online.

And you can always consider a high-yield money market with similar interest rates, but it will likely come with a minimum balance to maintain.

Bottom line: compare rates and get that money working instead of rusting. You can view rates at each bank's Web site or use the free service at to see how different accounts measure up.

Says Mills: "It's a very good time to be a retail banking customer, especially if you like to shop around."

Copyright (c) 2006 MarketWatch, Inc.