Savings accounts at online-only banks — often referred to simply as online savings accounts — function similarly to traditional savings accounts, except you will manage your account entirely online or by app. Not only can these savings accounts be one-click convenient, they may offer you a healthier interest rate than accounts held at a brick-and-mortar bank.
If you’re trying to decide whether an online savings account or traditional savings account would suit you best, here are the details you need.
Key Points
• Online savings accounts are managed digitally, and often provide higher interest rates and lower fees than traditional banks with brick-and-mortar locations.
• Online savings accounts typically provide 24/7 access and a broad range of online banking tools; however, they lack in-person interactions and may not offer as many banking services or products.
• To deposit money into or withdraw it from an online savings account, a customer may use an ATM in the bank’s ATM network, sign up for direct deposit, transfer funds between accounts, use a check, or complete a wire transfer.
• While cash deposits are not possible at every online bank, some banks enable customers to make deposits at ATMs in their ATM network or at certain retailers.
• Opening an online savings account typically involves filling out an online application, choosing an account type, designating beneficiaries, making an initial deposit, and creating an account login.
What Is an Online Savings Account?
An online savings account functions similarly to one offered by a traditional bank, except you manage your banking needs digitally. With an online savings account, you won’t have the option of walking into a bank when you need support, but you will be able to quickly click your way ahead and complete most transactions.
Many traditional banks also typically offer online banking, and this feature tends to be widely used by members across different types of banks. According to SoFi’s April 2024 Banking Survey of the bank usage of 500 U.S. adults, 48% of people reported they use online banking daily.
Since the principle is that your money will sit and grow in these accounts, rather than flow in and out constantly, banks pay you interest on these funds. They get to use your money, and they give you interest in return for that privilege. As your cash grows in the account, you can achieve different goals, such as building up an emergency fund, saving for a vacation, or getting a down payment together for a house. SoFi’s survey found that 77% of respondents with a savings account use it to save for emergencies, and 52% use it to save for a goal like a vacation or a house.
Of the percentage using a savings account to save for a goal, the survey showed that they are saving for different things:
• 40% are saving equally for long-term and short-term goals
• 35% are saving primarily for short-term goals like a vacation or for holiday spending
• 26% are saving primarily for long-term goals like a house or a child’s education
Earn up to 4.20% APY with a high-yield savings account from SoFi.
No account or monthly fees. No minimum balance.
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How Does an Online Savings Account Work?
You start an online savings account with an opening deposit, and then you’re ready to start saving. With an online savings account, you can manage your savings from anywhere in the world at any time of day. While there are plenty of banks and credit unions that have online account management services, purely online savings accounts often come with unique perks. For example, online banks usually don’t have a minimum balance requirement like traditional banks do. They often pay a higher interest rate, too.
You can transfer funds in and out as needed, as with any savings account. Typically, savings accounts had only allowed six or fewer transfers per month. Initiate more than that, and you might have to pay a fee. However, many banks have stopped following this guideline in recent years. Check with your bank to know the details.
It’s also worth mentioning that with an online account, you won’t be able to deposit or withdraw cash from your account by strolling into a branch. There aren’t physical banking locations to visit. You’ll need to transfer funds in and out electronically, or you may be able to use ATMs. There’s a silver lining, though. In exchange for not having to pay for the overhead that comes with running an in-person bank, online banks often offer lower fees and higher interest rates.
Depositing Funds Into an Online Savings Account
As mentioned above, it’s not possible to deposit cash into an online savings account by visiting a branch. Instead, you can deposit money in the following ways:
• Transfer money from a linked account into your online savings account. (If you’re really committed to saving, you may want to automate recurring transfers). SoFi’s survey found that 63% of people said they frequently transfer funds between accounts using online banking.
• Use a check; this deposit can be done by mobile deposit, which 43% of respondents in SoFi’s survey said they do frequently, or by mail.
• Complete a wire transfer into your online savings account.
• Set up direct deposit of funds (say, your paycheck or other benefits) to go into the account.
Withdrawing Money From an Online Savings Account
Next, consider withdrawing and spending money from a savings account. When you have an online savings account, here are your options:
• Transfer funds into another account (say, one held at a traditional bank), and then take out cash in person.
• Use an ATM. Some online banks allow you to link your savings to a debit card, which makes this possible.
• Initiate a wire transfer.
• Put in a check request.
• Digitally send money to other people (say, by a P2P transfer) so you don’t need to take out cash.
Cash Deposits
Not all online banks enable you to deposit cash, as they have no physical banking locations of their own. However, many online banks allow you to deposit cash at participating retail locations, typically for a fee. Some may also have options for depositing cash at select in-network ATMs. See above for some of the other ways you can move your funds around so your cash gets where you want it to go.
Benefits of Using an Online Savings Account
Here are some of the key benefits you may enjoy with an online savings account.
• Higher interest rates and lower fees. This means your savings can likely grow faster. These higher interest rates are possible because the financial institution doesn’t have to pay for expensive brick-and-mortar banking locations.
• Manage accounts anywhere, anytime. It’s possible to do all of your basic savings account management whenever and wherever you like. The only requirement: a good, secure wifi connection.
• Helpful mobile banking apps. Plenty of traditional banks have mobile apps, but online banks tend to have high-tech apps with more features.
• More accessible customer service. You are likely to be able to get all of the banking support you need from the comfort of your own home or on the go. Online banks were built to be responsive in this way.
Disadvantages of Using an Online Savings Account
On the flip side, there are some disadvantages when you only bank online. Here are some of the cons of using an online savings account.
• No face-to-face interaction. With online savings accounts, you can’t go into a physical banking location, ask questions, or sit down with a bank representative. For those who like face-to-face interaction, this can be a disadvantage.
• Can lose account access. When a savings account is entirely online, you may lose account access temporarily in the rare event of the bank’s system going down.
• ATM access can be limited. Some online banks don’t have their own ATMs. They may try to provide greater access with some independent ATM networks or by reimbursing customers for ATM fees incurred when using out-of-network ATMs.
• Fewer financial services. Some online banks offer more limited product selections than larger traditional banks. If you’re looking to manage your savings account, loans, and other financial products in one place, you may find that an online savings account doesn’t meet your needs.
| Pros of Online Savings Accounts | Cons of Online Savings Accounts |
|---|---|
|
• Higher interest rates and lower fees • Ability to manage accounts anywhere, anytime • Helpful mobile banking apps • Accessible customer service options |
• No face-to-face interaction • May lose account access temporarily • ATM access may be limited • Fewer financial services |
Opening an Online Savings Account
If you decide you want to open an online savings account, here are the steps you will likely take.
1. Fill out the application. This process typically happens entirely online. Generally, you will be expected to provide such information as your name, proof of address, Social Security number, and government-issued photo ID (say, a driver’s license or a passport).
2. Choose an account type. There may be an option to choose between different savings account types, such as an individual account or a joint account that you can share with a family member.
3. Designate beneficiaries. Next, you will need to choose a beneficiary to whom the savings account would go if you were to die.
4. Deposit funds. Some online banks won’t require a minimum initial deposit or will only request $1. Whatever the amount may be, you will need to make that minimum deposit. (There’s no typical online savings account minimum balance to maintain, by the way. Check with banks to understand their particular guidelines.)
5. Create login information. All online savings accounts will need a username and password. It’s important to make the password a secure one that includes one or more capital letters, numerals, and symbols. Also, it bears repeating: Don’t reuse passwords. Unique passwords will help keep you secure from hackers. This is a big issue if you are wondering whether or not online savings accounts are safe.
💡 Quick Tip: An online bank account with SoFi can help your money earn more — up to 4.20% APY, with no minimum balance required.
Online Savings vs Traditional Savings: Which Is Best for You?
There are both advantages and disadvantages to consider when choosing between an online savings account and a traditional savings account. Being aware of the unique advantages and disadvantages of each can make it easier to find the right fit.
| Online Savings | Traditional Savings |
|---|---|
|
• May offer better rates and low or no fees • Tend to have more robust digital tools and features • Offers the convenience of banking from just about anywhere, at any time • Potentially minimal ATM access in certain areas • May have fewer options for depositing and withdrawing cash • No face-to-face customer support |
• Provide in-person banking locations • May provide broader ATM access • May offer a broad range of products • May have fewer online resources • May have lower interest rates and higher fees • May not provide perks that many online banks offer, such as sign-up bonuses |
The Takeaway
Online savings accounts vs. traditional ones can be more convenient, have more digital features, and offer lower fees and better interest rates. Traditional banks, however, may have more options for withdrawing and depositing funds, and they can be the right choice for people who like face-to-face interaction when it comes to their finances. Figuring out the right fit can depend on your money style and goals.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
How do I use an online savings account?
With access to a computer or a smartphone, you can access your online savings accounts from anywhere at any time simply by logging in.
What is the typical minimum balance for an online savings account?
That depends: Some online savings accounts have minimum balance requirements while others don’t. Check at the banks you are considering.
Is my money insured in an online savings account?
Your money should be safe in an online savings account, as long as the online savings account is insured by the FDIC. If so, your account is automatically insured for up to $250,000 per depositor, per account category, per insured institution.
What is the typical interest rate for an online savings account?
Interest rates vary over time and from bank to bank. Generally, online savings accounts offer higher interest rates than traditional savings accounts. High yield savings accounts at online banks may be 8x or more the national average rate for savings accounts.
How can online banks offer such good interest rates?
Because online banks don’t have the expensive overhead that comes with managing in-person banking locations, they can afford to pass their savings to their customers in the form of higher interest rates.
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SoFi members with direct deposit activity can earn 4.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.20% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
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