Banking Savings & Money Market Accounts

How Does an Online Savings Account Work and Is it Worth It?

Online savings accounts combine versatility with a higher potential to earn interest, but they still face their own problems and challenges.

Updated Oct. 4, 2024
Fact checked

We receive compensation from the products and services mentioned in this story, but the opinions are the author's own. Compensation may impact where offers appear. We have not included all available products or offers. Learn more about how we make money and our editorial policies.

Online banking is becoming the norm today and for good reason. Not only is it convenient, but you can often earn higher interest rates and pay lower fees. While it took me a while to get used to not having a physical branch to visit, I thoroughly enjoy the benefits I get from my online savings accounts now.

The key is finding an account that offers the benefits and features you need. For example, if you regularly deposit cash, look for a bank that allows cash deposits at ATMs, otherwise you’ll make yourself crazy jumping through hoops to deposit the cash.

If you haven’t tried online banking yet, keep reading to learn how online savings accounts work and why you should consider them.

Featured High Yield Savings Accounts

4.5
info
Western Alliance Bank High-Yield Savings Premier - 4.81% APY1

Western Alliance Bank offers a powerful 4.81% APY to help grow your money. FDIC insured, no fees,2$500 minimum deposit, $0.01 minimum balance to earn APY.

Learn More
5.0
info
SoFi Checking & Savings - Earn Up to $300 When You Set Up Direct Deposit

Earn up to 4.20% APY3 and collect up to a $300 cash bonus with direct deposit or $5,000 or more in qualifying deposits.4 FDIC Insured.5

Learn More

What is an online savings account?

An online savings account is a savings account with a financial institution that typically doesn’t have any brick-and-mortar bank branches and operates fully online. Because these banks don’t have the same amount of overhead as traditional banks, you can often get higher interest rates or lower fees.

The tradeoff is that you must be comfortable banking online because you won’t have a physical branch to visit. I know it can feel intimidating at first, but after a few transactions, it gets easier. You’ll just need to figure out if you want to conduct your banking transactions through the mobile app, an ATM (in some cases), or the online portal.

How do online savings accounts work?

You might wonder how you can manage your money if your bank account is only online. Fortunately, most online banks make it easy to make deposits and withdrawals, though the processes vary from bank to bank.

Depositing funds into your account

Most online banks allow mobile deposit, but there are other ways you can deposit money into your account, including:

  • Transfer funds from a linked account, also known as an ACH (Automated Clearing House) Transfer
  • Deposit checks, either by mail or mobile check deposit
  • Receive direct deposit from your employer
  • Receive wire transfer

Withdrawing money from your account

Withdrawing money from your account can get tricky, especially if the bank doesn’t affiliate its online savings account with an ATM network. Here are some options to get your funds:

  • Transfer money to a linked external account
  • Request a mailed check
  • Use outgoing wire transfer
  • Use ATMs, if your savings account is linked to a debit card

Cash deposits

Things get a bit more complicated when it comes to depositing cash because of the lack of physical branches. While there are some online banks that have a few retail locations, like Capital One cafes, these are few and far between. If you find yourself with cash to deposit, you can try one of these options:

  • Deposit locally into an account with a physical branch and transfer the funds electronically
  • Buy a money order and deposit it like you would a check
  • Load cash onto a reloadable prepaid debit card, such as the American Express Bluebird card, and transfer the money electronically to your online savings account
  • Deposit into an ATM that accepts cash deposits (if available)

Customer service

A big consideration many people have is how they’ll get customer service without the in-person banking option. Fortunately, many online banks offer robust customer service options both online and over the phone.

Once you open an account, you’ll have options in your bank’s portal to access customer service via chat, email, or a phone call. While it’s not the same as in-person support, I’ve had nothing but good luck with the support on my online savings accounts.

Benefits of online savings accounts

Online savings accounts offer many benefits including:

  • 24/7 access: You don’t have to wait for traditional bank hours to manage your money. You can manage your account through the online portal or mobile app 24/7.
  • Helpful digital resources: Online banks make it easy to manage your funds, including making deposits and withdrawals, transferring money, and even accessing digital tools and educational opportunities to enhance your financial situation.
  • Lower fees: You can find many online savings accounts that don’t charge a monthly maintenance fee or have minimum deposit requirements.
  • Higher APYs: Most online savings accounts pay higher interest rates than traditional bank accounts because the banks don’t have the same overhead. However, many have tiered interest rates that require specific balances, so be sure to read the fine print to understand what’s required to earn the highest interest rates.

Drawbacks of online savings accounts

Online savings accounts do have their cons when compared to traditional brick-and-mortar banks. This includes:

  • Cash is harder to deposit: Many online savings accounts don’t include a debit card, which means you can’t deposit cash at an ATM. You may have to take extra steps to deposit cash, such as depositing it into your checking account and transferring the funds to your savings account.
  • ATM access may come with fees: Most online banks partner with large ATM networks, but if you go outside that network, you may pay a fee to your bank and the host bank.
  • Required minimum balance: Some banks require a minimum balance to earn certain perks, such as higher APYs, no maintenance fees, or extra bonuses.

Top savings accounts for November 2024

With so many good savings account options to choose from, it can all be a bit overwhelming. Factors like having a high annual percentage yield (APY) and low or $0 monthly maintenance fees are essential when making your decision.

Here are some of my favorites:

Account name APY6 Monthly maintenance fee Learn more
Varo Savings Account 5.00% (as of 07/01/24) with direct deposit requirement $0 Visit Varo
Wealthfront Cash Account7 5.00% $0 Visit Wealthfront
CIT Bank Platinum Savings account 4.70% $0 Visit CIT Bank

5.0
info
SoFi Checking & Savings - Earn Up to $300 When You Set Up Direct Deposit

Earn up to 4.20% APY3 and collect up to a $300 cash bonus with direct deposit or $5,000 or more in qualifying deposits.4 FDIC Insured.5

Learn More
5.0
info
American Express® Savings - 4.00% annual percentage yield (APY)8

High Yield Savings Account. No Minimum Required Deposit or Balance.9 Terms Apply.

Learn More

How to choose an online savings account

Since you have many more options to choose from when looking for a bank account online, it’s important to know what to consider:

  • APY: Compare the APYs available on each account and the requirements to earn it. Make sure you can meet the minimum opening balance and ongoing average daily balance requirements to earn the desired interest rate.
  • Fees: Many online savings accounts don’t charge monthly fees, but don’t assume. Read the fine print and look not only at monthly maintenance fees, but any other fees you may incur.
  • ATM network: Ensure the ATM network is convenient for you or that you have the option to go outside the ATM network without incurring fees. Many banks reimburse for non-network ATM fees, but ensure that’s the case.
  • Customer service: Look for an online bank that offers the customer service you’re comfortable with, as not all provide phone support. If you’re not comfortable being 100% digital, look for a bank that offers human support over the phone.
  • Cash deposits: If you see yourself depositing cash often, understand how that works with each bank to ensure it’s something you can handle.

FAQs

What kind of interest rates can I expect on online savings accounts?

Higher interest rates are one of the major benefits of online savings accounts, though they vary from bank to bank. A savings account with Capital One 360, for instance, will give you an interest rate of 4.10% (as of 10/3/24), while the Aspiration Spend & Save account offers up to 3.00% (as of 10/3/24) APY with Aspiration Plus. Online banks are generally a good place to look for a high-yield savings account with a competitively high APY.

How can online banks offer such good interest rates?

Because online-only banks don’t need to pay the employee wages, maintenance, and real estate costs associated with brick-and-mortar branches, they can charge fewer fees, require no minimum balance, require a low or no minimum opening deposit, and usually offer better interest rates.

What is the typical minimum balance for an online savings account?

The minimum balance requirement for an online savings account is usually structured one of three ways:

  • No minimum balance, which is typical for many online banks
  • A minimum balance to keep the account open, which could be as little as $1 or as much as several thousand dollars
  • A minimum balance to earn the advertised high interest rate, with anything less earning a lower APY

Is online banking safe? Is my money insured?

To discover the type of protection you have when banking online, make sure your new bank has the words "member FDIC" somewhere on its website or marketing materials. The FDIC, or Federal Deposit Insurance Corporation, is an independent agency of the United States government. If you deposit money at an FDIC-insured bank and the bank later fails, your money is protected (typically a maximum of $250,000 is covered) by that FDIC insurance.

However, banks are not mandated to be FDIC-insured, so it’s always important to make sure the bank you’re considering is. To see if a bank is FDIC-insured, you can go to the FDIC BankFind page. If you are banking with a credit union, make sure they are covered by the National Credit Union Administration (NCUA).

Even if the online account is insured by the FDIC, you should make sure the bank you choose uses robust technology to protect your money because the FDIC does not provide reimbursements for fraud perpetrated against accounts.

Is your money stuck in an online savings account?

No. Just like a traditional savings account, your money is accessible to you when you need it. With just a few clicks, you can move money in and out of your savings and into another account.

Transfers to an account within the same bank are usually instant, while transferring to an account with a different bank might take a few business days before the funds are made available.

What is the best protection for online banking?

There are measures you can take yourself to help protect your account from malicious parties and fraudulent activity, such as setting up multi-factor authentication and text alerts, using difficult passwords, avoiding public Wi-Fi when accessing your bank information, and installing anti-virus software, to name a few.

Most banks offer some type of security guarantee and limited liability protection for their customers. Ally Bank, for example, offers a security guarantee which states “that you will not be liable for any unauthorized Online or Mobile Banking transaction as long as you report the unauthorized transaction...within 60 days from when your statement is made available.” Ally also offers a range of security measures, from account monitoring to free anti-virus software that can protect up to three devices.

Bottom line

If you’re tired of the measly interest rates brick-and-mortar banks pay on savings accounts, consider an online account. They are great for saving for large goals, such as emergency funds, vacations, college, and buying a house.

Don’t worry, you can still access your funds and manage them yourself using the online portal or mobile app. The key is to find the account with the highest APY, lowest fees, and the features you need to manage your funds.

4.5
info

Western Alliance Bank High-Yield Savings Premier Benefits

  • Earn 4.81% APY1from a top-rated U.S. bank with $70B+ in assets10
  • Enjoy 24/7 online access to your account and funds
  • Interest is compounded daily and posted to your account monthly
  • No fees,2$500 minimum deposit, $0.01 minimum balance to earn APY
  • Enhanced security and FDIC insured
Click here to open a Western Alliance Bank High-Yield Savings Premier Account

Author Details

Matt Miczulski

Matt Miczulski is a personal finance writer specializing in financial news, budget travel, banking, and debt. His interest in personal finance took off after eliminating $30,000 in debt in just over a year, and his goal is to help others learn how to get ahead with better money management strategies. A lover of history, Matt hopes to use his passion for storytelling to shine a new light on how people think about money. His work has also been featured on MoneyDoneRight and Recruiter.com.

Author Details

Samantha Hawrylack

Samantha Hawrylack is a writer with more than five years of experience. Her work has been published in Newsweek, MarketWatch, USA Today, Rocket Mortgage, BiggerPockets, Crediful, and many more. She holds a Bachelor of Science in Finance and a Master of Business Administration from West Chester University of Pennsylvania, and she was previously a brokerage investment professional with Series 7 and 63 licenses at Vanguard.