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

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.

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 December 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	APY5 <p class="">The product and annual percentage yield (APY) data displayed on this website is gathered from various sources and may not reflect all of the offers available in your area. Although we strive to provide the most accurate data possible, we cannot guarantee its accuracy. Always verify account details and availability with the financial institution before opening an account.<br></p>	Monthly maintenance fee	Learn more
Varo Savings Account	5.00% (as of 12/11/24) with direct deposit requirement	$0	Visit Varo
Wealthfront Cash Account6 <p>Wealthfront Cash account is offered by Wealthfront Brokerage LLC, Member of FINRA/SIPC. Wealthfront Brokerage is not a bank. We convey funds to partner banks who accept and maintain deposits, provide the interest rate, and provide FDIC insurance. Rate is subject to change.</p>	5.00%	$0	Visit Wealthfront
CIT Bank Platinum Savings account	4.35%7 <p>Platinum Savings is a tiered interest rate account. Interest is paid on the entire account balance based on the interest rate and APY in effect that day for the balance tier associated with the end-of-day account balance. APYs — Annual Percentage Yields are accurate as of December 20, 2024: 0.25% APY on balances of $0.01 to $4,999.99; 4.35% APY on balances of $5,000.00 or more. Interest Rates for the Platinum Savings account are variable and may change at any time without notice. The minimum to open a Platinum Savings account is $100.</p>	$0	Visit CIT Bank

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

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.