Advantages and Disadvantages of an Online Savings Account

Millennial couple checking home finances at banking app from digital tablet.
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As banks introduce mobile-friendly features and secure access to your account, it makes sense to explore your online savings account options. Although many brick-and-mortar banks also offer online accounts, online-only banks have unique features you should consider.

Traditional banks typically offer mobile services, so you’re probably already familiar with some form of online banking.

What Are the Main Advantages of an Online Savings Account?

Online savings accounts have several benefits over traditional bank accounts. Here are some major ones to consider:

Top-notch Apps and Websites

Because the livelihood of online banks depends on your ability to access their apps or websites, they invest heavily in their technology to make it easy to use and to operate without glitches.

24/7 Banking Availability

You always have access to your online savings account from your computer or through the app, and you can handle any transaction you need online, including deposits and transfers. You won’t need to wait in line at a bank, either. Some online banks with savings accounts, such as Discover and Ally Bank, offer 24/7 access to a customer service representative.

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Higher Interest Rates

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. They typically charge low or no bank fees, too.

As of Dec. 16, 2022, Discover is offering APY and Ally is offering APY on their savings accounts. The higher rate gives savers tremendous earning potential compared to a traditional bank. On its website, Discover says that a customer who deposits $15,000 will earn $450 in interest at a rate in the first year of the account. That compares to $1.50 at the banks that offer an APY of only 0.01% — which is the rate at some of the biggest players in the industry.  

No or Low Minimum Deposits

Online banks allow new customers to set up accounts with no or low deposits. Neither Discover nor Ally, for example, require a minimum amount to open an online savings account. With TIAA Bank, it’s $25. As a comparison, customers must deposit $100 to open an Advantage Savings account at Bank of America.

No or Low Fees

With that Bank of America account, you must keep at least a minimum daily balance of $500 or more in your savings account — or meet other requirements — to avoid an $8 monthly service charge. Online banks often don’t charge any fees. Discover, for example, doesn’t assess extras for many things, including monthly maintenance, an official bank check, or a check you’ve deposited that doesn’t clear because of insufficient funds.

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The Disadvantages of Using Online Savings Accounts

Consider some of the downsides and if they might apply to your situation.

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 a linked ATM that accepts cash deposits. In lieu of that, you would require another step, such as depositing the cash into your checking account and writing a check to deposit.

Minimal Personalization

An online-only savings account doesn’t give you the option of walking up to a teller to make a deposit, asking a question in person or getting detailed assistance with your account.

Slower Transfer Times

If you have both savings and checking accounts at a traditional brick-and-mortar bank, you can link them and move funds quickly and seamlessly between them. It isn’t as easy with online banks; transferring funds from your online typically takes a few days. If you know you’ll need to move funds to pay a large bill, for instance, you’ll need to plan and request the money several days in advance.

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No Relationship Building

Traditional banks are good at using face-to-face transactions to introduce you to other products they offer and explaining how they fit into your financial portfolio. You could be missing out on extra services that could benefit you.

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.

Is It a Good Idea To Open an Online Savings Account?

At a young age, you might have learned about savings accounts, with a parent setting one up for you to deposit your allowance, money earned for mowing lawns or walking dogs, or a birthday check from Grandma. Today, the concept remains the same — putting money aside for a rainy day or for future needs — but you have many more choices in types of savings accounts.

What Are the Pros and Cons of an Online Bank?

With a traditional savings account, you might not earn much interest and you could pay a maintenance fee, but you’ll have easy access to your money at your local bank. With a high-yield savings account, you’ll earn higher interest rates. Other types of common savings accounts are money market accounts, which share characteristics of both savings and checking accounts, or a certificate of deposit, which requires you to leave your money in an account for a set period.

If you’re interested in one of these savings accounts, and if you’re comfortable banking on your smartphone or another device, an online savings account could be an option for you to find the best savings account for your hard-earned money.

Is an Online Savings Account Better?

A high-interest online savings account might be for you if you don’t require in-person interactions for your banking needs and you want the convenience of managing your funds from a mobile device or computer.

But, if you can’t ignore the cons, 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.

More on Savings Accounts

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Sabah Karimi and Daria Uhlig contributed to the reporting for this article. 

Rates are subject to change; unless otherwise noted, rates are updated periodically. All other information on accounts is accurate as of Dec. 16, 2022.

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About the Author

Jami Farkas holds a communications degree from California State University, Fullerton, and has worked as a reporter or editor at daily newspapers in all four corners of the United States. She brings to GOBankingRates experience as a sports editor, business editor, religion editor, digital editor — and more. With a passion for real estate, she passed the real estate licensing exam in her state and is still weighing whether to take the plunge into selling homes — or just writing about selling homes.
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