Do online banks offer less safety?

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Dear Dr. Don,
Why are interest rates for online savings accounts so much higher (close to 1 percent) than rates at local banks (close to zero percent)?

Are they less safe?
— Laura Legit

Dear Laura,
It’s not a matter of safety. Bricks and mortar don’t make your money safer. Bankrate measures bank safety based on capital adequacy, asset quality, profitability and liquidity.

An insured deposit is an insured deposit. Depositors who take a belt-and-suspenders approach to bank safety can consider a bank’s Safe & Sound rating in deciding where to save. If you use Bankrate’s Compare Rates feature in searching for a new home for your money, it reports the bank’s Safe & Sound rating along with the yield.

Depositors should consider an account’s safety, convenience, liquidity and yield in deciding where to put their savings. Online banks tend to pay a higher rate on savings because it’s needed to attract depositors. If your deposits are insured by the Federal Deposit Insurance Corp. or the National Credit Union Share Insurance Fund, then you can rest assured that your money is safe, so focus on convenience, liquidity and yield in deciding where to put your savings.

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