Check out the pros and cons of online savings accounts and find the best savings account for your hard-earned money.
Online Banking vs. Traditional Banks
Traditional and online banks both offer a range of online and mobile services, so neither is immune to online security risks. A review of online banks’ security policies shows that they provide the same internet security measures as their brick-and-mortar counterparts.
With that being equal, look to other features when weighing the pros and cons of online banking to determine whether an online savings account is the best choice for you.
Advantages: Online Savings Account
Online savings accounts have several benefits over traditional bank accounts. Here are some major ones to consider:
- Mobile banking: Online banks rely heavily on mobile banking apps for your smartphone and tablet. The apps let you deposit checks, review your balance and keep track of transfers with a few taps or screen swipes.
- Easy access: You always have access to your online savings account from your computer, or you can call customer service to check your balance — and in some cases, make a deposit or handle other banking tasks. Waiting in line at the bank or rushing to get there before it closes will become a thing of the past.
- High interest: Many online banks offer higher interest rates because they have less overhead costs than brick-and-mortar banks, and they pass the savings along to their customers. Not only do online-only banks often have the best high-interest savings account options, they typically charge low or no bank fees.
- FDIC insured: Most online savings accounts are FDIC-insured like other bank accounts, which means your money — up to $250,000 — is safe from a bank failure.
- Flexible Funds Transfers: Many online banks let you transfer money to your savings account from your account at any other bank, online or brick and mortar. Ally Bank, for example, even allows you to schedule transfers a year in advance.
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Disadvantages: Online Savings Account
Despite online banks’ high savings account interest rates and 24/7 access, they aren’t without drawbacks. Here are the disadvantages to consider:
- Deposit issues: Depositing a check into your online savings account is easy — just use your bank’s app to take a picture of it. But depositing cash means finding an ATM that accepts cash deposits or having a friend or business cash a check for you.
- Minimal personalization: An online-only savings account doesn’t give you the option of walking up to a teller to make a deposit, ask a question or get help with your account.
- Slow transfer times: It typically takes three to five days to move money from your online bank to another institution using standard transfer services. An online-only account might not work for you if you need quick access to your cash.
- No relationship building: Relationship banking serves customers’ changing needs by providing customized investment, insurance and loan options. An online-only bank typically doesn’t give you the opportunity to build a relationship with a banker or the bank.
- Limited Product Offerings: Online banks typically don’t have a full range of products. Some offer checking accounts or savings accounts, but not both. Many lack one or more major products like credit cards and home, auto and student loans.
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Consider Your Options
A high-interest online savings account might be for you if you don’t want in-person interactions for your banking needs and you want the convenience of managing your funds from a mobile device or computer. Stick with a brick-and-mortar bank if you prefer a more personalized banking experience or want services beyond deposit accounts. In the event that neither option suits all your needs, use a combination of both for a customized solution.
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Daria Uhlig contributed to the reporting for this article.