Guide to Online Savings Accounts

Online savings accounts are interest-bearing digital deposit accounts that you can access with your computer, tablet, or smartphone device. It is a fintech-based deposit account that may allow customers to earn interest on their deposits. 

Customers can deposit funds through direct deposit and may transfer funds through mobile banking apps. Customers may also have the option to withdraw funds from an ATM or deposit funds into their savings account with an ATM card.

Below, we highlight the basics of an online savings account, how it works, and the benefits and drawbacks to having one.

What Is an Online Savings Account?

An online savings account is not a traditional savings deposit account offered by a brick-and-mortar financial institution. As mentioned above, an online savings account is a fintech-based deposit account that may allow customers to earn interest on their deposits.

Virtually all banks, credit unions, and thrift institutions offer online banking or mobile banking apps in today’s day and age. So when we mention online savings accounts, we’re not talking about conventional retail banking products. That’s because the online savings account description is a savings account that relies primarily on financial technology as a digital banking product.

An online savings account generally does not accommodate in-person banking, so customer service may take place via telephone or electronic communications. An online savings account may not be right for you if you prefer in-person banking at your local bank, credit union, or federal savings and loan association.

How Does an Online Savings Account Work?

If an online savings account is a virtual or digital savings account, how does an online savings account work? Here’s how it works: You can log in and access your online savings account through a computer, tablet, or smartphone device. Once signed in, you can check your account balance and transfer money from bank to bank, among other things.

A top savings account, such as a high-yield savings account, generally encourages saving more than spending. Customers with an online savings account may request an ATM card if their bank offers one. An online savings account ATM card may allow you to make account deposits or withdrawals at an ATM that accepts deposits.

An online savings account features a routing number and account number, which you can use to set up direct deposit with an employer.

And finally, some online savings accounts offer an above-average APY, or annual percentage yield. A high APY allows you to earn more interest on your savings account than you would if it were in a traditional checking or savings account.

Recommended: Guide to APY vs APR

How to Open an Online Savings Account

Opening a savings account with an online bank may require that you complete an application online and verify your identity with proper documentation. Some banks may require a minimum opening deposit amount, but online savings accounts generally feature no monthly maintenance fees and no minimum balance requirements.

Deposits and Withdrawals in an Online Savings Account

As mentioned earlier, customers with an online savings account may request an ATM card if their bank offers one. An online savings account ATM card may allow you to make account deposits or withdrawals at an ATM.

You may also deposit checks into your online savings account through your mobile banking app or direct deposit, and withdraw money by transferring funds to different types of bank accounts.

Recommended: What Is Direct Deposit?

Benefits and Drawbacks of an Online Savings Account

Below, we highlight some of the benefits and drawbacks of an online savings account:

Online Savings Account Pros

• May allow you to earn compound interest on your deposits

• May charge no monthly maintenance fees 

• May have no minimum balance requirements

Online Savings Account Cons

• No in-person customer service or physical retail banking locations

• Some online banks may not offer ATM cards

• May have limitations on withdrawal frequency

Recommended: Guide to Withdrawing Money From a Savings Account

Types of Online Savings Accounts

Online banks may offer the following deposit account options:

• Basic online savings account

• High-yield savings account

• Certificates of deposit (CDs)

• Money market account

• Cash management account (CMA) 

• Health savings account (HSA) 

Tips for Choosing the Right Online Savings Account

Banks, credit unions, and thrift institutions may offer online savings accounts. The terms and conditions of these accounts can vary by institution, so you may want to compare different online banks to choose the account that’s right for you.

Here are five simple tips that may help:

• Compare APYs

• Check whether the account charges monthly maintenance fees

• Check whether the account requires a minimum balance

• Check whether the institution offers online savings account ATM cards

• Check whether the online account features limitations on withdrawal frequency

Recommended: High-Yield Savings Accounts vs Certificates of Deposit (CDs)

Alternatives to Online Savings Accounts

Online savings accounts may not be right for you if you prefer in-person banking services. Here are some alternatives to online savings accounts that you may consider:

• Using a traditional savings account

• Opening a checking account

• Opening a share savings account at a federally insured credit union 

Opening a joint bank account with your partner or spouse

The Takeaway

Depositing checks into a federally insured online savings account may be an option to consider, as online savings accounts typically earn higher interest rates, they may not charge monthly maintenance fees, and they may not require a minimum balance.

If you’re looking to earn interest on your savings, Lantern by SoFi can help. Our online banking marketplace makes it easy to compare APYs and other account features. You can view different options and choose a bank account that’s right for you.

Compare high-interest savings accounts with Lantern.