Many US banks have failed in the past twelve months. Others have recently announced that they are not only surviving, but also beginning to see some real earnings stack up despite the global economic downturn. Only a year ago people were stashing their money in high yield online savings banks like HSBC and ING Direct where they could earn upwards of 3% on their cash. But the recession has really taken away much of what initially attracted investors and consumers alike to online savings accounts.

I currently have online savings accounts with both ING Direct and HSBC. One of the great things that drew me to their products was the fact that they donâ??t charge any fees. It is impossible to overdraft with their products, but if I want to build my savings in an environment that is fee free, I really think that these online savings accounts are still great places for people to park their money. However, the very reason why I like these online savings accounts is also the reason why these banks online are being out done by their bigger cousins like Wells Fargo and Bank of America. Both of these financial institutions charge fees for many different reasons and are therefore able to be much more profitable in a recession.

People will see less and less of a difference between their local banks in a low interest rate period. If they can only earn 0.25% on their savings, why would it matter which bank they are putting their money into anyway? But banks have learned to be ever sneaky when it comes to charging for services and products that often times consumers don’t even need in the first place. But by charging these fees, these banks are also able to be much more profitable, and return some of these profits to stockholders. We’ve seen this with Wells Fargo recently when they announced that they would likely be able to pay back earlier than expected at least some of the TARP money they received. Online banks are now not able to compete with banks that charge fees and the online interest rates have dropped along with the Fed’s decisions to cut rates over and over to help spur on more lending by banks that have branches and locations in almost every town across America with few exceptions.

Instead of the 3.5% my money was earning in an online savings account, Iâ??m now only earning about 1.5%. This seems like a rip-off, but the fact that ING Direct and HSBC still donâ??t charge me any fees for anything is a great reason to keep my money there. So Iâ??ll continue to purchase other banksâ?? stock while keeping my money far away from their vaults. This move may seem hypocritical, but in this economy, itâ??s more of a calculation of financial stability and survival than anything else. Hopefully once the global economy picks up and banks are once again able to make the lionâ??s share of their profits by reinvesting their customerâ??s cash, the online banks will once again return to their high yield statuses.