Banking » Guides » Online Savings Account – How It Works And What are The Benefits
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Online Savings Account – How It Works And What are The Benefits

There is nothing more traditional than a savings account. Nowadays, most financial institutions offering savings accounts give an interest a little higher than 3.5%.But is it the right investment? What are the benefits and what are the top online saving accounts?

You can trust the integrity of our unbiased, independent editorial staff. We may, however, receive compensation from the issuers of some products mentioned in this article. Our opinions are our own.

What Is Online Savings Account?

There is nothing more traditional and well known than a savings account. The basic principle is that by opening a savings account you entrust your money to a bank.

Have you wondered what the bank does with your money?

The bank lends your money to other people or companies. For each loan, they charge the borrower an interest rate. It's only logical that the bank should pay you interest on the money you have put into your savings account. It combines both putting money aside and making a profit out of it.

Do you also hate the back and forth to your bank physical branch?

Ever since the Internet was introduced, the world of payments and banking has changed dramatically. From new virtual currencies to online banking, it is all a result of the presence of the Internet. Even though online banking uses the same principles as “normal” banking, nowadays there are banks that operate only using the web.

They do not have physical branches and buildings and are called online-only banks. The existence of such banks is yet another drop in the vast ocean of competition between banks – the more they compete, the better the terms. This means that we are getting better and better offers.

Good news: Online is the future

Nowadays, most financial institutions offering savings accounts give an interest a little higher than 2.5%. Meanwhile, online-only banks offer high-interest rates on their savings accounts. So, if you have some cash under the bed, find out a nice online bank where you can put this money and gain some interest.

Advantages Of Online Savings Account

We are all witnesses of how rapidly the virtual space is expanding – online shopping, online voting, online banking. It's very convenient and only with a click of your mouse, you can purchase a product, for instance. What are the main perks of having an online savings account?  Let’s begin.

Higher Interest Rate

Online banks do offer their customers higher interest rates on their savings accounts. They can afford to do so because their maintenance costs are quite limited – no offices and fewer employees. You should be careful because online banks can change the interest rates during the term.

Usually, they attract new clients by offering high yields but later they lower the rate. However, they can still outperform the terms brick-and-mortar banks provide.

 Unlimited Access

Online banking virtually gives you access 24/7, 365 days a year. You can access your account anytime, anywhere as long as you have the login credentials. No need to go to an office and wait to be serviced. This means that you can monitor your account information anytime, and make transactions too.

If you have any problems while online, there are usually clients support specialist who is ready to assist you.

You are the boss

As we know, sometimes our experience at a bank can be quite frustrating and annoying. But if you have an online banking account, you are the “boss”. This is very suitable for busy and well-organized people who want to be in charge of their operations, transactions and everything else.

Superb Online Services

Since they have only a web presence, it is only logical that only-online banks will provide their customers with the best web services. Normally, brick-and-mortar banks do not invest as much in web technologies as online banks do.

How To Open An Online Savings Account

As anything else, before you start you need to do your homework. It is not very difficult but it requires your attention and time. Do your research and find banks which offer online savings accounts. Determine your purpose. Do you want a high-interest rate or to skip all ATM fees?

There are many other additional features, such as the opportunity to pay your bills online or a checking account, which may also help you choose a bank.

It's important that you also check out credit unions and local banks. Sometimes, they might offer very good terms on their online savings accounts. Remember – the competition is fierce.


As previously mentioned, you have to understand one thing – online banks usually change the interest rate over time. So, even if you have a high-paying savings account with a bank, your annual percentage yield might start falling behind. Therefore, it will not be logical and beneficial for you to swap banks just because one of them offered you a very high-interest rate but in the long-run, this rate goes lower and lower.

Once you have chosen a place to open your account, perhaps you'll have to pay a small deposit. This deposit will be taken from a checking account linked to the new savings account.

Security And Protection Of Online Savings Account

How Is Your Account Secured

Security and protection are of paramount importance when we talk about online services and transactions. For a bank to verify your savings account, they need your identity information in order to protect themselves from fraud.

Some online banks, require from the account holder to choose a security question. In fact, this is a standard procedure when opening an account anywhere. Then you have to give the answer, which supposedly only you know. In case of a problem with your account, the bank might ask this question. Others will have your mother's maiden name as well as your previous address.

Also, if you want to have an online savings account you have to link it to a checking account. This is yet another verification and protection.  This is great because you can transfer money between the two accounts if they are both active, of course.

Consider The Risk

On the whole, online banking is very safe and secured. However, there are always risks.

Risk Of Hacking And Information Theft

Normally, most credible banks offer great security, and their apps and web services are well protected. All the information and processes are “encrypted” and no one else but you can have access to it. Make sure you have all the credentials somewhere safe because if someone breaks into your computer, they can steal your information and access your accounts.

Risk of bank bankruptcy

Even though this is quite a rare occasion, it does happen every now and then. In 2008 during the great economic recession, 25 banks in the USA failed. So make sure the bank you want to open an account with is Federal Deposit Insurance Corporation (FDIC) insured. It's also recommended to keep your deposit under the maximum coverage limit (currently $250,000 per deposit). What does this mean? If your lender fails, then this money (250,000) will be secured and restored by the FDIC.

Choose The Best Option

When choosing the best option for you, take a look at the following factors:

  • The annual percentage yield (APY). Well, since this is a savings account and the idea is to make a profit, this one is very important. Be careful because some of the rates banks offer may vary over time. Read your contract carefully before signing and make sure the rate is what you wanted and expected.
  • Costs, fees, charges. What will all the fees and charges will be? Generally, most online banks don't have any fees but like the previous one, go over the conditions carefully.
  • Is it FDIC insured? Some online banks are not covered by the FDIC. Avoid them.
  • Customer service. Since all the things happen on the internet, you will rely on impeccable customer support. Is there such when you need it?