How the Online Bank vs Big Bank Calculator Works
Just as Korean savings banks (jeochuk eunhaeng) often pay higher deposit rates than the big commercial banks, U.S. online banks and smaller community banks routinely pay several times the APY of the largest national banks -- because they carry lower branch overhead and pass some of the savings on to depositors. The gap can be dramatic: online savings accounts often pay 4%+ APY while a major national bank's basic savings account pays a fraction of a percent.
This calculator lets you enter your deposit amount, the online bank's APY, a national bank's APY, your term, and an estimated marginal tax rate to compare the after-tax interest each option would pay. Unlike Korea, U.S. banks don't withhold tax on interest at the source -- your bank reports it on Form 1099-INT and you pay tax on it at your ordinary income tax rate when you file, so the rate you select changes both totals equally.
Before moving your money, confirm the online bank is FDIC-insured (nearly all reputable ones are), since that's what protects your deposit up to $250,000 per depositor, exactly the same protection a traditional national bank offers.
Frequently Asked Questions
Yes, as long as the online bank is FDIC-insured (most major ones are), your deposits are protected up to $250,000 per depositor, the same as a traditional national bank.
The mechanism is different -- U.S. banks don't withhold tax at the source. Instead, your bank reports interest on Form 1099-INT and you pay tax on it at your ordinary marginal income tax rate when you file.