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Banking

What Is An Online Savings Account

By David Krug 5 minute read

On the one hand, online savings accounts offer greater flexibility while also offering a greater return on investment. As people are offered more and more options for where and how they bank, their banking habits continue to change. It’s impossible to compete with the ease of managing your bank accounts from a computer or smartphone, despite the fact that traditional banking has a dedicated following.

What Is An Online Savings Account? Traditional banks’ reputation for demanding high fees and offering low interest rates may leave you wondering how precisely you’re benefiting from keeping your money there, even if you’re a fan of face-to-face human connection.

Traditional brick-and-mortar banks sometimes provide lower interest rates than those found in internet savings accounts, allowing your funds to grow. For high-yield savings accounts, this is true even more so. Get to know more about these kinds of accounts and how they might help you in the long run.

What is the definition of an online savings account?

A savings account with an online financial institution is one with a financial institution that does not have any brick-and-mortar locations and operates entirely online. Even though they are entirely digital, online savings accounts must adhere to the same banking laws as traditional banks, such as the Federal Reserve’s Regulation D, which limits monthly withdrawals to six.

Because your account is entirely digital, you have the freedom to manage your money whenever and wherever you choose, without having to add another stop to your itinerary or wait for the bank to open. Because online banks’ websites and mobile applications are basically shops, they frequently invest significant money in making them optimized and simple to browse. This enables you to bypass bank lines and transfer money easily with only a few clicks.

Due to the absence of physical premises, online banks save the related expenditures, such as maintenance and real estate. These savings are frequently passed on to online bank clients in the form of increased interest rates, fewer fees, no monthly maintenance costs, and no minimum balance requirements. This provides clients with greater flexibility and freedom to spend their money anyway they like. This implies they may be a suitable fit for financial goals such as emergency fund accumulation.

However, online savings accounts have several disadvantages when compared to traditional brick-and-mortar banks. If you deal with cash on a regular basis, for example, you may find yourself without a way of putting funds into your account. This is because certain online banks do not offer ATM access. This may need the establishment of a second checking account dedicated to these types of transactions. This may be an issue for people who do not want their accounts distributed among numerous organizations.

On the bright side, there are online checking accounts that include debit cards that give you cash back and mobile applications that include budgeting tools. As a result, it’s critical that you shop around to discover what each bank has to offer and to choose the account that’s right for you.

How does an online savings account’s deposit and withdrawal process work?

Most online banks provide a variety of deposit and withdrawal options, however they may differ per bank. The following are the most frequently used methods for funding and withdrawing funds from an online savings account:

Depositing funds into your account

  • Transfer funds from a connected account, alternatively referred to as an ACH (Automated Clearing House) Transferring (usually takes one to three business days)
  • A cheque, either mailed or deposited by mobile check deposit
  • Employer direct deposit
  • Transfer through wire

Withdrawing money from your account

  • Money is sent to a connected account.
  • Submit a check request
  • ATMs that accept incoming wire transfers, providing your savings account is connected to a debit card.

Depositing cash becomes more complex because of the lack of physical branches. While some online banks, such as Capital One, have a few retail facilities, they are few and far between. If you find yourself in need of a cash deposit, you can use one of the following methods.

Cash deposits

  • In order to transfer funds online, deposit money into a bank account that has a physical branch.
  • Deposit a money order in the same manner as a check.
  • The American Express Bluebird card, which can be reloaded with cash, may be used to transfer funds to your savings account online.
  • Deposit cash at an ATM that accepts cash (if available)

Highest-yielding investment options in January 2022

All of the many savings account options might be a little intimidating. It’s critical to consider things like the annual percentage yield (APY), required minimum balance, and fees while making your choice. You may end up with a low return or additional costs. However, we’ve simplified the process for you so you can get started earning money right now. Check out our pick of the finest savings accounts for the month of January 2022.

How to open an online savings account

To create an online savings account, you must first evaluate if it would help you achieve your savings goals or other personal financial objectives. An online savings account may be opened in a matter of minutes. Completing the following steps should take only a few minutes:

  1. Complete the online form.
    Personal identifying and contact information will be entered here. This includes the following: your name; birth date; name; birth place; phone number; email; and tax identification number (TIN) (such as a Social Security number).
  2. Decide on the sort of account you want to use.
    Whether you want a solitary account or a joint account, you’ll have to make a decision. As a co-owner, you’ll need to fill out each account holder’s personal information separately.
  3. Make a list of beneficiaries
    If you die away, you can choose here who will get the funds in your account.
  4. The account must be credited with money.
    It is up to the bank to choose the minimum opening balance. Some banks just ask for a $1 deposit, while others may demand more. A bank transfer, a check sent or deposited, or a wire transfer are the most popular ways to fill the account once you’ve decided on a sum.
  5. Set up your username and password.
    To finish the establishment of your savings account, you’ll need to create a username and password.

Is your online savings account holding you back?

No. Your money is available to you whenever you need it, just like a regular savings account. With a few mouse clicks, you may transfer money from your savings account to a different account. Transfers to another bank account may take a few business days before the cash is available, although transfers within the same bank are normally immediate.