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An online savings account is a convenient savings option, allowing you to handle your banking from anywhere, anytime, as long as you have an internet connection. Their popularity has grown, as they tend to offer higher interest rates and charge lower fees than traditional brick-and-mortar banks.
Learn more about the benefits of online savings accounts and how to choose one:
- What is an online savings account?
- How to choose the right online savings account
- How to open an online savings account
- Alternatives to online savings accounts
- Savings account FAQs
What is an online savings account?
With an online savings account, you handle transactions online rather than at a brick-and-mortar bank.
Online savings accounts typically offer higher annual percentage yields (APYs) and charge lower fees than traditional savings accounts because they don’t have the overhead costs of maintaining a physical location. However, some traditional banks offer both in-branch and online accounts.
| Online banks | Brick-and-mortar banks | |
|---|---|---|
| Convenience | Bank from anywhere with a laptop or device and an internet connection | Have to visit a branch location to handle deposits and withdrawals |
| Technology | Tend to have user-friendly and feature-rich mobile apps and websites | Online and mobile features are usually limited |
| Cash deposits | Cash deposits typically aren’t accepted | You can deposit cash at a branch or ATM |
| Customer service | Customer service is handled virtually via the website or mobile app or over the phone | You can visit a bank branch to ask questions or get help with issues |
| APYs | Tend to pay higher interest rates on savings | Usually pay lower interest rates on savings accounts |
| Fees | Generally charge low fees or no fees | May charge higher fees and have a variety of them |
How to choose the right online savings account
Not all online savings accounts are created equal. If you’re wondering how to choose one that’s right for you, here are a few factors to consider:
- Monthly maintenance fees: While many online savings accounts have low or no fees, some might charge a monthly maintenance fee, inactivity fees, or fees for using an out-of-network ATM.
- Minimum deposit and minimum balance: A minimum deposit is a set amount of money that a bank requires you to have to open an account or deposit every month to qualify for certain benefits, such as earning a higher APY. A minimum balance requires that you keep a minimum amount of money in your account to avoid fees or earn a higher APY.
- Withdrawal options: Some banks limit the number of withdrawals you can make per statement cycle. A federal rule known as Regulation D used to restrict certain types of transactions to no more than six per month. This rule ensured banks could keep enough reserves on hand. While the Federal Reserve removed that requirement in April 2020, many financial institutions kept their withdrawal restrictions. If you go over the limit, the bank may charge a fee.
- Digital experience: With an online savings account, you’ll handle a lot of your banking online via the bank’s website or a mobile app. Make sure the bank has an easy-to-use and accessible mobile app with all the features you need.
- Customer service: You won’t be able to get face-to-face customer service with an online savings account, so make sure they have robust and responsive customer service online or over the phone.
- Federally insured: Ensure the financial institution is insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). These organizations provide government-backed insurance on deposit accounts, with up to $250,000 per owner, per institution. The FDIC or the NCUA will cover your losses if the financial institution fails.
The high-yield savings account options in the table below are Credible partners.
Different types of savings accounts
Picking the right type of savings account is a crucial aspect of achieving your financial goals. Here are some of the options you have to choose from:
- Individual account: This type of account is owned by a single person. No one else can access this account unless that person has a power of attorney for the individual account holder.
- Joint account: This is an account owned jointly by two people. If they have no other beneficiaries on the account and one of the joint owners dies, the account belongs solely to the living account holder.
- Payable on death (POD): A POD account is a savings account that has one or more beneficiaries. If the account owner passes away, these beneficiaries will receive the account balance — assuming they can provide appropriate proof, such as a death certificate. A beneficiary on a joint account listed as POD doesn’t have a right to the account until the last account owner passes away.
- Uniform Transfers to Minors Act (UTMA): These accounts are usually set up for minors by a guardian. The guardian manages the account until the child reaches age 18 or 21, depending on the state.
How to open an online savings account
Here’s a step-by-step guide to opening an online savings account once you’ve shopped around and found the right account type and financial institution.
- Gather your documents. You’ll need a few documents to prove your identity and fund the account, such as a government-issued ID, Social Security number, mailing address, date of birth, and account and routing number for the bank account you’ll use to fund your new account.
- Apply online. You typically open an online savings account via the bank’s website or mobile app. You may need to answer questions to verify your identity using information pulled from your credit report, such as your mortgage payment amount, auto lender’s name, or streets you’ve lived on.
- Fund the account. Finally, you need to transfer money from an existing bank account to your new account. You’ll typically do this via electronic funds transfer, wire transfer, or an electronic check deposit through the mobile app.
Reasons to have a savings account
More than 38% of American households don’t save for unexpected expenses or emergencies, according to a 2019 FDIC survey. Opening an online savings account can help you avoid becoming part of that statistic.
Here are several advantages to having one or more savings accounts:
- Save for retirement. Using a tax-advantaged account such as a 401(k) or IRA is the best way to save for retirement, but you can use a savings account to save for retirement in an accessible and low-risk way.
- Save for college. Saving for college in a 529 plan also offers tax advantages. But you can also use an online savings account to save for college.
- Build emergency savings. A job loss, sudden medical emergency, or unexpected repair can leave you struggling to make ends meet. Building an emergency fund helps you manage unforeseen circumstances without going into debt.
- Fund long-term goals. Whether you’re saving for a new car, a down payment on a house, or another long-term goal, stocking that money away in a savings account puts your money out of sight, out of mind — making you less likely to tap your savings for daily expenses.
Alternatives to online savings accounts
Online savings accounts might offer higher interest rates than accounts at traditional brick-and-mortar banks. However, the APYs on these accounts are still low.
The national average APY on savings accounts — including online savings accounts — is just 0.07% as of May 2022, according to the FDIC. Even if an online bank offers an APY of 1% (more than 10 times the national average), you may be able to earn more elsewhere.
Here are some other types of accounts to consider:
- Money market account: A money market account is an interest-bearing hybrid between a checking and savings account. Money market accounts tend to offer higher interest rates than savings accounts, but they also allow you to write checks and use ATM and debit cards for withdrawals.
- Checking account: Some checking accounts earn interest and allow unlimited access to your money for everyday purchases. The trade-off for this perk is that you might have to maintain a higher minimum balance.
- Certificate of Deposit (CD): A CD is another account that pays interest on your savings, but a CD is a timed deposit. You commit to leaving your money in the account for an agreed-upon period in exchange for a higher interest rate.
- Money market mutual fund: A money market mutual fund isn’t a bank account, so it’s not FDIC insured. But they’re typically low risk, provide a higher rate of return, and are highly liquid.
Savings account FAQs
Here are answers to some frequently asked questions about online savings accounts.
Will the interest rate change on my savings account?
Interest rates on savings accounts are variable. This means the rate goes up when the Federal Reserve raises interest rates and falls when the Fed lowers rates. If you have enough money to cover any financial setbacks in an emergency fund, you might want to move some money to an alternative that pays a higher return.
Do I need to pay taxes on my savings account?
Interest earned from a savings account is taxable. If your savings account earns more than $10 of interest during the calendar year, your financial institution should send you a 1099-INT.
With interest rates on savings accounts as low as they’ve been, most people don’t notice a change to their tax liability due to interest income. You might consider moving some of your savings into a different investment vehicle if you do.
How much money is in the average savings account?
The average American family has just $5,300 in transaction accounts, including checking and savings combined, according to Federal Reserve data.
Do online savings accounts offer debit cards?
Most savings accounts don’t offer debit cards. This is because they’re meant to help you accumulate money over time rather than cover daily expenses.
However, you may be able to open an online savings account that’s linked to your checking account. Then you can transfer money from savings to checking as needed and use the debit card from the checking account to make purchases.
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Trustpilot About the author 
Janet Berry-Johnson
Janet Berry-Johnson is an authority on income taxes and small business accounting. She was a CPA for over 12 years and has been a personal finance writer for more than five years. Janet has written for several well-known media outlets, including The New York Times, Forbes, Business Insider and Credit Karma. In 2021, Canopy named her one of the Top 10 Influential Women in Accounting and Tax.
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