Online banks have fewer overhead costs so their accounts usually have higher interest rates and fewer fees. Banking services are provided online or through the bank’s app. The benefit of opening an online savings account is that you can earn a higher interest rate and pay fewer fees. In the U.S., the average interest rate on a savings account was 0.10%, as of July 18, 2022. In comparison, you can find rates more than 10 times the national average with online savings accounts. For example, Ally offers a 0.90% APY and Citi offers 1.01%.
How an Online Savings Account Works
A savings account is an account you open at a bank or credit union. You can use the account to deposit money, save for financial goals, and earn interest on your savings. If you open an online savings account, no branch locations are available. The advantage of this is that you can manage your account through your computer or smartphone. That means you have access to your account information no matter where you are. And unlike with brick-and-mortar banks, you’ll open your account online as well. You’ll start by filling out an application and entering the following personal information:
NameDate of birthAddressPhone numberSocial Security number
If you’re opening a joint account, you’ll have to enter the information for each account holder. From there, you’ll choose your account type, fund the account, and set up your login information. To deposit money in your account, you can set up a direct deposit, transfer the funds from another account, or use the bank’s mobile app to deposit a check. You can either transfer the money to another account or do a wire transfer to withdraw your funds. However, you may have to pay a fee for each wire transfer.
Pros and Cons of an Online Savings Account
Pros Explained
Easy setup: It’s easy to open an online savings account. If you have the necessary documents on hand, you can open your account and deposit the funds that same day.Earn more interest: Online banks don’t have to spend money maintaining physical locations, so they can offer higher interest rates. The average interest rate on a savings account was 0.10% as of July 18, 2022, but with an online savings account, you could earn an APY of more than 1%.Minimal monthly fees: The exact terms can vary depending on the bank you choose, but most online banks charge minimal fees. For example, you may not have to pay any monthly maintenance, overdraft, or ATM fees.
Cons Explained
Lack of personal relationships: When you open an account at a brick-and-mortar bank, you build personal relationships with the employees and receive customized service.No branch locations: If you have a problem with your account, you can’t visit a branch location to resolve the issue. All of your communication will be online or over the phone, which could be a problem for some people.Certain services unavailable: Online banks can’t offer in-person services such as notarizing documents, offering a safe deposit box, or providing a money order.
