An online, high-interest savings account is a secure place to tuck away money. Savings accounts, like all deposit accounts, are insured by the FDIC for up to $250,000.
Because online banks don’t have to pay for retail space and maintenance like brick-and-mortar banks do, they often provide higher rates for their high-interest savings accounts. Here are a few examples of high-yield online savings accounts and their interest rates as of today:
- Discover Savings Account: 0.60% APY
- Capital One 360 Savings Account: 0.50% APY
- CIT Savings Account: 0.55% APY
- Ally Bank Online Savings Account: 0.60% APY
- Synchrony Bank High Yield Savings: 0.65% APY
Advantages of Online Savings Accounts
The biggest benefit of opening an online savings account is getting a higher interest rate than you’ll likely get at a brick-and-mortar bank. Compared with the national average savings rate — which is 0.07 percent as of April 16, 2018, according to the FDIC — online savings banks are currently paying as much as 1.30 percent.
In addition to paying high rates, the best online savings accounts feature low fees. In many cases, you can open a no-fee savings account with no minimum balance — and some online banks offer no-fee checking accounts, too.
If you have an online savings account, you’ll have 24/7 access to it. Online banks like Ally offer mobile and internet banking services that enable you to access your account, process money transfers and make deposits at any time.
Related: 10 Best Savings Accounts of 2017
Disadvantages of Online Savings Accounts
As cutting-edge as online high-interest savings accounts might be, you can’t walk into a bank branch and talk to a manager if you have a problem. And although online banking customer service reps are often available 24/7, the experience is not the same as having a face-to-face meeting with a banker.
Because an online bank has no branches, it can be harder to make a deposit, especially cash, to an online bank than to a traditional bank. Ally Bank, for example, requires you to scan a picture of your check or use the mobile app to make a deposit.
Cash is not accepted at online banks, which might be an issue for you. If you sell your car for cash, for example, or you run a cash business, you can’t put that money into your online bank. You can, however, use these ways to make a deposit in your account:
- Remote check deposit
- Online transfers and direct deposit
- Wire transfers and mail
Is an Online Savings Account Right for You?
If you’re comfortable with the idea of a bank without branches, you might be an ideal online banking client. In exchange for the familiarity of a real-world presence, online banks have much to offer in terms of low fees, high interest rates and 24/7 account access.
If, on the other hand, you simply can’t bank with an online-only entity, opening a savings account online might not be for you. The same holds true if you aren’t comfortable with conducting banking transactions online from your computer or smartphone.
Although an online savings account is convenient, if you don’t like using the web or mobile apps, it might not be for you. And if you feel unsafe transmitting banking information over the internet you might want to stick with a more traditional financial institution.
When deciding whether to open a savings account online, consider your priorities. If you value convenience and high interest above all, an online account might fit the bill. If you’re uncomfortable handling mobile or online transactions, need to speak to your banker in person, or like to deal primarily in cash, you might consider a more traditional banking relationship.