What is an online savings account? Curious about online savings accounts? Get familiar with what an online savings account is, how it works, and how you can open one. February 28, 2023 Banking, like so many things we do these days, has largely moved online. With that shift has come an array of online-only banking options, including online savings accounts. But what is an online savings account? A true online savings account is one that exists solely online, with no brick-and-mortar bank branch associated with it. This can mean more mobile banking features, higher interest rates, lower fees, and lower minimum balances than typically come with a traditional savings account. For people who are used to managing most of their lives from their smartphone or computer screen, an online savings account may be a natural fit. It may even offer extra conveniences over a traditional account. While any given online savings account will have its own features and options, Lindsay Dell Cook, CPA, president and founder of Budget Babble, can help you understand how online savings accounts work and why they might be useful for certain savings goals. How does an online savings account work? Instead of having to find your way to a physical bank branch, Cook says you can typically make a deposit into an online savings account by depositing a check online, through a mobile banking app, or by using an ATM in your online bank’s network. You could also transfer funds from a different existing account. If you’re looking to withdraw money out of your savings account, Cook recommends transferring that money to your checking account. She notes that your funds may transfer more quickly to an online checking account with the same provider than they would to a checking account with a brick-and-mortar bank. Making ATM withdrawals may also be an option, though they may come with fees you’d rather avoid (like ATM fees). Other than that, most online savings accounts work very similarly to traditional savings accounts. In general, they give you a safe place to stow your money as you save up for emergencies or a future purchase, Cook says. Why should you open an online savings account? “The biggest benefit of opening an online savings account is usually additional interest offered,” Cook says. “Compared to a brick-and-mortar bank, online savings accounts tend to offer at least another 1% of interest, but often even more.” (The Discover Online Savings Account, for example, offers interest rates more than five times the national savings average.1) Online savings accounts can typically offer a better deal because they save money by not maintaining physical locations, Cook explains. If you’re someone who likes to do everything from your phone or online, online savings accounts can also offer convenience. You can open a savings account online or with your phone without visiting a physical bank location. And mobile apps make it easy to view your balance, make transfers, and even deposit checks. Because it can sometimes take several business days to transfer money from your online savings account to a checking account, Cook finds online savings accounts particularly useful for money you want to keep at arm’s length. “It can be a great place to house your emergency fund so you’re not tapping into that account for things that aren’t real emergencies,” Cook says. Cook also likes online savings accounts for midterm savings goals, which are goals you have for somewhere between three and 10 years in the future. “Online savings accounts are great for savings you need really secure and liquid, like saving for a home purchase, vacations, or renovations,” she says. Is an online savings account FDIC-insured? Many online savings accounts (including the Discover Online Savings Account) offer the same Federal Deposit Insurance Corporation (FDIC) insurance that traditional savings accounts do, according to Cook. FDIC insurance protects up to $250,000 per account holder, per FDIC-insured bank. Cook recommends always confirming that an account is FDIC-insured before you open it. An online banking platform may be an FDIC member itself, or it may partner with a member bank to offer FDIC-insured accounts to its customers, Cook says. (Discover Bank is an FDIC member.) You will often find an online bank’s FDIC status featured in multiple places on its website. Can you add to an online savings account regularly? Cook says you can add to an online savings account regularly (in other words, make a deposit) in a couple of ways: Schedule automatic transfers from a checking account to your online savings account. Cook often advises her clients to schedule a certain amount of money to transfer from their checking account to their savings account on each payday if they’re paid on a regular schedule. “That way, the money is out of your account before you start spending from the paycheck,” she says. Ask your employer to send a portion of your paycheck to your online savings account. Cook notes that not all employers offer this convenience, “but it’s often the option I see clients have the most success with.” She also points out that this savings tactic shouldn’t replace any contributions you are making to your retirement accounts, health savings accounts, or other important accounts. If you’re transferring money from a checking account at a different bank, Cook says to confirm whether the bank charges a fee for external transfers. “It may charge a fee, even if the online bank doesn’t,” Cook says. If it does, then regular transfers might not make financial sense until you make a switch to a new bank. “Online savings accounts are great for savings you need really secure and liquid, like saving for a home purchase, vacations, or renovations.” Can you pay bills from an online savings account? You typically can’t easily pay bills from an online savings account. For that, Cook suggests looking into an online checking account. “Most online banks today offer both types of accounts,” Cook says. “That’s convenient because it allows you to transfer money from your online savings account to your online checking account quickly and pay bills from there.” How do you open an online savings account? Similar to opening an online checking account, here’s how to open an online savings account in five steps: Call it a sunny day fund—online savings with no monthly fees Learn more Discover Bank, Member FDIC 1. Research your options This step may take some time, but it’s important to know that the account you’re opening will actually work for you. First, check to ensure that the account is FDIC-insured. If it’s not, find one that is.Next, look at the fees, minimum balance requirement, interest rate, and rewards if they’re offered. This step will help you compare accounts according to how well they’ll support your savings goals.See if you can do your banking at nearby no-fee ATMs. Often, online banks have ATM networks that give their customers another option for deposits and withdrawals.Look for quality customer service and a well-designed mobile app. Even without a physical location, online banks often offer customer service to answer questions and resolve issues. And make sure the mobile app has the features you need and is easy to navigate. 2. Create a profile Once you’ve settled on an online bank, you’ll create a profile on the website. Be sure to set a strong password that’s long, unique, and hard to guess. 3. Enter your personal information Expect to complete an application that asks for your identifying information, including your Social Security number and contact information. This is why it’s important to only open an account with a provider you trust. 4. Select an account type After entering your information, you may need to select the type of account you’re trying to open, if you haven’t already. In this case, you’d choose an online savings account. 5. Fund your account The final step is to put some money into your online savings account. If the account comes with a minimum deposit requirement, you’ll have to deposit enough to meet it. This is typically done by transferring funds from an existing account into your new online savings account, which you can do online or from the mobile app. Open an online savings account today Now that you know what an online savings account is, you can see that they offer a number of advantages. They’re typically easy to use, often insured by the FDIC, and offer interest rates that can keep your money growing. All of these features make an online savings account the perfect place to keep your savings. If you’re ready to get the most out of an online savings account, check out the features of a Discover Online Savings Account to see how it can support your savings efforts and fit your lifestyle. 1 The APY for the Online Savings Account as of 05/01/2023 is more than five times the national average APY for interest bearing savings accounts with a balance of $500 as reported by Curinos as of 05/01/2023. National average is based on information regarding the top 50 banks (by deposit size) and may not include information from variations in regional pricing at such banks or information from products that may not be widely available to their customers. Rates were obtained from Curinos, who relies on the data from the banks it tracks and such information cannot be guaranteed. APYs are subject to change at any time. Articles may contain information from third parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third-party or information.