April 17, 2020 8:00 AM PT

Are Online Savings Account a Good Idea?

Read more about Bank Reviews & Deals
Ad Disclosure: This article contains references to products from our partners. We may receive compensation if you apply or shop through links in our content. You help support CreditDonkey by using our links. (read more)

Online savings accounts offer higher interest rates. But is it safe? Take a look at the risks before you switch.

© CreditDonkey

Online savings accounts are similar to traditional savings accounts, but there are some key differences.

Online savings accounts typically offer:

  • Higher interest rates
  • Lower fees (or none at all)

Traditional savings accounts offer:

  • In-person customer service
  • Easier deposits and withdrawals

Most online savings accounts do offer the same FDIC protection that traditional savings accounts offer. That means that your money will be insured for up to $250,000 if the bank fails.

What We Like About Online Savings Accounts

  • Higher interest rates. This is the main perk of online savings accounts. Many offer APYs in the range of 2.00% to 2.40%, while traditional savings accounts average 0.07% (as of April 27, 2020).

  • Lower bank fees. Online banks are less likely to charge monthly maintenance fees. However, you may need to maintain a minimum balance to get that feature.

  • Online convenience. Online savings accounts allow you to conduct your banking without leaving your house.

  • Easy transfers. Many online banks offer free and easy ACH transfers to make up for the fact that they can't accommodate cash deposits.

What We Don't Like About Online Savings Accounts

  • No physical branches. With traditional banks, you can interact face-to-face with tellers to discuss your banking needs. Plus, you're able to make cash deposits.

  • Difficulty withdrawing money. Some online savings accounts will charge you for withdrawing your money.

  • Fewer product offerings. Many traditional banks offer other financial products, such as mortgages, insurance, and other types of financing. Online banks don't usually offer these.

Should You Open an Online Savings Account?

Consider the following factors before you open your account:

  • Will you need quick access to your money? You may be better off with a traditional savings account.

  • Do you prefer a physical branch to do your banking? Only traditional banks can offer this.

  • Are cash deposits non-negotiable for you? Online savings accounts typically don't accept cash deposits, but accept transfers and direct deposits from other accounts.

  • Are you fairly tech-savvy? While online banks are becoming more user-friendly, you'll still need to be comfortable banking only via a website or app.

Is your money stuck in an online savings account?
Just like with a traditional savings account, you can withdraw your money from an online savings account . But online savings accounts often offer higher interest rates than traditional savings accounts. That helps you earn more money over time. In addition, banking online can save you time over banking in-person.

How to Open an Online Savings Account

Once you've decided to open an online savings account, here's how you can get your account up and running:

  1. Choose your bank. Research the terms and yields of different online savings accounts to find one that fits your needs.

  2. Gather your documents. Have personal information like your Social Security number and driver's license number on hand.

  3. Submit an application. Fill out an application online with your personal information.

  4. Fund your account. Transfer funds into your online savings account and include at least the minimum balance amount.

What do I need to open an online savings account?
Online application forms usually require basic information, like your name, Social Security number, and a mailing address. Keep in mind, however, that some banks may ask additional questions to get a picture of your financial situation, like the amount of your mortgage payments.

You will also likely need to deposit some money to open the account. Each bank has different rules for what amount you need, though some require as little as $1.

Online Savings Account FAQs

Are online-only banks safe?
Online banks are considered very safe. Using specific technology that protects your privacy, you can rest assured that online banks are just as safe as in-person banks. That is, there is minimal risk.

Can you lose money in a savings account?
If you're banking with an FDIC-insured bank (which most banks are), your money will be protected if the bank were to fail. However, this is only for amounts less than $250,000. Any amount higher than that is not insured by the FDIC.

How long does it take to get an online savings account?
Many online banks can approve your application within minutes, though some banks with more rigorous applications may require up to a day or two.

What is the typical minimum balance for an online savings account?
Many online savings accounts don't require a minimum balance, but some require as little as $1. Others have a $5,000 minimum balance requirement or higher. Don't try to open a new online savings account if you do not have enough funds to meet the bank's minimum deposit requirement.

Are online savings accounts FDIC insured?
Most online savings accounts are FDIC insured, meaning that your funds will be protected for up to $250,000 in the event of a bank failure.

Bottom Line

Online savings accounts have some significant advantages over traditional savings accounts. They usually offer higher APYs, which means you'll earn more money faster. Plus, their fees are generally lower than traditional banks.

However, some people appreciate the customer service and product offerings of a traditional bank. Weigh the pros and cons of online savings accounts vs traditional savings accounts to see if they're right for you and your needs.

Write to Rebecca M at feedback@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.

Note: This website is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content. You do not have to use our links, but you help support CreditDonkey if you do.

Read Next:

How Online Savings Accounts Work

How Online Savings Accounts Work

Are Online Banks Safe?

Are Online Banks Safe

Best Online Savings Account

Best Online Savings Account

CIT Bank
Member FDIC

CIT Bank Savings Connect - 2.40% APY

  • Earn 14x the national average
  • $100 minimum opening deposit
  • No monthly maintenance fee
Best Cash Management Accounts

Cash Management Accounts

Best Places to Open Business Checking Account Online

Open Business Checking Account Online

How to Delete Your Greenlight Account

Delete Greenlight Account

Is BMO Harris a Real Bank

BMO Harris Real Bank

Is Discover Bank a Good and Real Bank?

Is Discover a Good Bank

How to Transfer Money from Greenlight Card

Transfer Money from Greenlight Card

Leave a comment about Are Online Savings Account a Good Idea?

Greenlight Alternatives

Greenlight Alternatives

Check out the top alternatives to Greenlight Debit Card for Kids to help you save money and enjoy similar features as Greenlight.

Next Page:

About CreditDonkey
CreditDonkey is a bank comparison website. We publish data-driven analysis to help you save money & make savvy decisions.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed on this page are those of the author's alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.

†Advertiser Disclosure: Many of the offers that appear on this site are from companies from which CreditDonkey receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). CreditDonkey does not include all companies or all offers that may be available in the marketplace.

*See the card issuer's online application for details about terms and conditions. Reasonable efforts are made to maintain accurate information. However, all information is presented without warranty. When you click on the "Apply Now" button you can review the terms and conditions on the card issuer's website.

CreditDonkey does not know your individual circumstances and provides information for general educational purposes only. CreditDonkey is not a substitute for, and should not be used as, professional legal, credit or financial advice. You should consult your own professional advisors for such advice.

About Us | Reviews | Deals | Tips | Privacy | Do Not Sell My Info | Terms | Contact Us
(888) 483-4925 | 680 East Colorado Blvd, 2nd Floor | Pasadena, CA 91101
© 2022 CreditDonkey Inc. All Rights Reserved.