In a recent MarketWatch Guides survey, 66.2% of respondents said they were living paycheck-to-paycheck. Opening a savings account is one way to avoid this situation since it can help you accumulate funds and grow wealth by earning interest. However, going to a bank and dealing with all the physical paperwork can be discouraging for many people looking to open a savings account, which is where online accounts help.
In this article, we’ll provide a comprehensive online savings account description to give you an idea of what you can expect from this savings arrangement. We’ll also explain how these accounts work and what their main types are to help you choose the best account option for your savings.
What Is an Online Savings Account?
An online savings account is a digital-first bank account offered by online banks, credit unions, and even many banks with brick-and-mortar branches.
Unlike traditional accounts tied to physical locations, online savings accounts are managed exclusively through digital platforms. This means:
- You won’t have the option to visit a physical branch for transactions or in-person assistance. Still, many online savings accounts provide access to 24/7 customer service via phone or online chat, so you won’t be left on your own
- All banking activities will be conducted through an online portal, mobile app, and ATM network
- You’ll have lower minimum balance requirements compared to traditional savings accounts, smaller fees, and more advanced mobile banking feature access
Here are the different types of online savings accounts:
Online Savings Account Type | Description |
Standard | A savings account with standard features and accessibility through online platforms. For example, GreenBack acts as a standard online savings account with competitive interest rates and no monthly maintenance fees |
High-yield | Offers a higher interest rate compared to a standard savings account |
No-penalty certificates of deposit (CDs) | A deposit account that offers the security of a CD without early withdrawal penalties |
Money market | A hybrid account combining features of savings and checking accounts, offering higher interest rates while allowing limited check-writing capabilities |
Health savings account (HSA) | A tax-advantaged account that covers qualified medical expenses paired with a high-deductible health plan |
How Does an Online Savings Account Work?
An online savings account works similarly to a traditional savings account, except that you’ll be typically paid more interest on your account balance.
For example, let’s say you deposit $1,000 into your savings account at 1% interest. After a year, you get $1,010.05. If you keep adding $100 to your account every month for ten years, you’ll end up with $13,725.
You can easily withdraw these savings out of your account in several ways, such as by transferring them to another account and then taking out cash in person, initiating a wire transfer, using an ATM, or digitally sending money to other people. There’s typically no limit on withdrawals, but you should still check if your bank has withdrawal limits before making a transaction to avoid penalties.
Are Online Savings Accounts FDIC-Insured?
Many online savings accounts come with Federal Deposit Insurance Corporation (FDIC) insurance, which protects any deposits up to $250,000 per account holder in case a bank fails.
To ensure the safety of your funds, it’s best to check whether an online savings account is FDIC-insured before opening it. You can usually find a bank’s FDIC status on its website. For example, Austin Capital Bank has been registered with the FDIC since 2006, and this information is available on FDIC’s BankFind Suite search.
Can You Add Money to an Online Savings Account Regularly?
You can add money to your online savings account whenever you want. Still, you may not be able to take full advantage of an online savings account by making here-and-there payments because you won’t be able to save enough money to earn significant interest.
A better approach is to regularly add balance to your savings account so that you’re saving money with each paycheck. To do this, we recommend the following regular deposit options:
- Scheduling automatic transfers
- Setting up direct payroll deductions
By implementing these methods, you can ensure you never forget to top up your savings account balance.
Pros and Cons of Online Savings Accounts
Here are the pros and cons of opening online savings accounts:
Pros | Cons |
Easy setup High interest rates Minimal monthly fees | Limited services Vulnerable to connection issues No credit score improvement |
Let’s look at these in more detail:
Pros
- Easy setup—If you have all the required documents at hand, such as your Social Security Number (SSN) and identification details, it’s easy to open an online savings account and deposit the funds the same day
- High interest rates—Since online banks don’t have to fund brick-and-mortar locations, they can offer higher interest rates compared to traditional banks. In fact, most online savings accounts had an annual percentage yield (APY) of 0.46% in 2024, according to FDIC
- Minimal monthly fees—Most online banks typically have low or no fees because of low overhead costs. You may not have to pay any monthly maintenance or ATM fees
Cons
- Limited services—Some online banks offer a smaller range of products and services to keep costs low. This might reduce your ability to apply for loans, request money orders, or use financial consulting services
- Connection issues—You may lose access to your account if the bank’s website undergoes maintenance or experiences downtime
- No credit score improvement—Savings accounts don’t involve debt, so they’re not reported to credit bureaus. This means they typically won’t improve your credit profile, even if you have a significant amount of savings in them
How To Open an Online Savings Account
To open an online savings account, follow these steps:
- Research your options
- File an application
- Fund your account
Research Your Options
Instead of going with the first savings account you come across, take some time to research various banks to find the best option. You want to look for an account with:
- FDIC insurance—Check whether an account is FDIC-insured so that your funds are protected against bank failure
- Good returns—Look at the APY, monthly fees, compounding interest, potential withdrawal limits, and requirements of an online savings account. If you find many accounts that charge no monthly fees, judge them by the APY; the higher this is, the more money you’ll earn
- ATM accessibility—If you want faster physical access to the funds in your account, look for savings accounts that offer ATM access
- Good customer service—Make sure your bank has excellent customer service that you can contact whenever you need help. This is especially important because many online banks don’t have physical branches you can go to for assistance
File an Application
Most online savings accounts have to be opened through a bank’s website. You’ll start by filling out an application and entering the following personal information:
- Name
- Date of birth
- Address
- Phone number
- SSN
Once you’ve done that, choose your account type—in this case, it will be an online savings account.
Fund Your Account
After you’ve chosen your account type, set up your login information and transfer funds into the account. You can do this by:
- Receiving a direct deposit into your bank account or electronically transferring funds from another account, which may require paying a fee
- Depositing cash or a check at an ATM
- Using the bank’s mobile app to deposit a check
If your account comes with a minimum deposit requirement, make sure you deposit enough money to exceed it.
Before you take these steps, you should know that one downside of most online savings accounts is that they may be vulnerable to fraud through phishing. An impressive savings account balance would be of no use if your account is ultimately compromised and your funds are stolen by scammers.
This is why you want to store your funds in a high-security savings account like FortKnox by Austin Capital Bank. While its main focus is account security, FortKnox also offers premium interest rates to help you grow your money.