How Online Savings Accounts Work

As mentioned above, online savings accounts usually have higher APYs than what can be offered by traditional banks, ranging from 1.5% to as high as 2%.

Because these products compound interest, you will be able to grow your savings much quicker. In contrast, traditional savings accounts usually offer rates below 1%, with the average being about 0.1%.

Some online savings accounts advertise no monthly maintenance fees, however those fees are usually just waived if you can manage a minimum balance.

Traditional savings accounts do this too, so there’s no escape. The only thing you can do is compare both accounts to see which ones have waive their fees the best.

Most traditional banks now let you apply for an account on their website as well as at physical branches. Online banks will guide you through a similar, straightforward process on their website.

Whether you apply online or in person, the personal info required is usually the same. You’ll need a government-issued ID, your SSN, and a mailing address.

Average time of account approval will depend on the bank, though it’s typically quick. Approval can take anywhere from 10 minutes to 1 day, with online banks usually making a quicker approval.

Most savings accounts, online and traditional, require that you deposit money into the account to officially open it.

The amount in question will depend on the bank you decide to work with (some require as little as $1).

To make sure you get the best deal for you, make sure you do your research into each of your bank choice’s minimum deposit.

Both online banks and traditional banks are required to limit the number of transfers and/or withdrawals that customers make from a savings account (for transfers, usually no more than 6 per month).

Online banks may also take slightly longer to process transfers and withdrawals. Learn each bank’s transfer/withdrawal policies and what fees you might incur by exceeding the limit.

Generally, deposits are going to be slightly easier with a traditional savings account. All you have to do is stop by your nearest branch and deposit your check or cash in a couple of minutes.

Online banks require a few more steps. You can either deposit your funds into a traditional bank that you currently bank with and transfer the funds over or use an ATM that is in your bank’s network.

This area is another spot where traditional banks may have an advantage over online banks.

Using a traditional bank, you have the option of interacting face-to-face with your teller to talk about your needs.

Online banks do not provide this option, but they do still offer excellent customer service using the phone or chatrooms.

Traditional banks may also have the advantage when it comes to selection of financial products, like mortgages, auto loans, insurance policies, and more.

Many online banks specialize in just a few types of accounts at most.

If you’re hoping to bundle several products from the same institution for easier banking, consider a traditional bank instead.