Savings Accounts FAQ

Frequently Asked Questions about Savings Accounts

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What is an online savings account?

An online savings account is similar to a traditional savings account. This type of account allows you to store your money safely while also earning interest. Unlike the traditional savings account offered by your local bank, however, online savings accounts are offered by online banks. These banks conduct their business entirely or almost entirely over the Internet, rather than in brick and mortar locations. Typically, you can only set up such accounts online, through a bank's website. All transactions and customer service interactions occur online or, in some cases, over the phone.

Why do I need an online savings account?

A savings account offers guaranteed returns without risk. If you keep all of your money in a checking account, you are missing out on the opportunity to earn interest, and essentially throwing money away. Since online banks do not have to maintain brick and mortar locations, they are able to save on operating costs. Online banks can then pass that savings on to their customers in the form of higher rates. Online banks generally offer free online banking and often allow you to electronically link your online savings account to one or more existing external bank accounts. This makes it easy to manage and transfer your money. An online savings account offers liquidity, flexibility, convenience and high yields.

What other features do online savings accounts offer?

Many online savings accounts offer features such as automatic savings and online bill pay. With automatic savings, you can schedule recurring transfers from an existing external account to your online savings account, in order to grow your savings quickly and effortlessly. With online bill pay, you can pay bills directly from your online savings account. Many online savings accounts also offer direct deposit, which allows your employer to automatically deposit all or a portion of your paycheck straight into your online savings account. And a few online savings accounts, such as ING Direct, allow you to create subaccounts, or multiple accounts, to help organize your budget and save toward specific goals or purchases.

Do online savings accounts charge monthly fees?

Some online savings accounts do charge monthly fees, and some charge monthly fees only when your balance drops below a certain minimum. However, most of the savings accounts reviewed on NextAdvisor.com have no monthly fees and no minimum balances.

How much money do I need to open an online savings account?

Many of the online savings accounts reviewed on NextAdvisor.com have no minimum balance requirements. Some, though, require an initial opening balance of at least $1, or at least $100.

What is an APY?

"APY" stands for "annual percentage yield." This refers to the amount of interest earned in one year. This percentage is determined by factoring the interest rate with the frequency of compounding. A higher interest rate and a greater frequency of compounding results in more interest earned for a particular account. This rate can change at any time. Banks can offer a high APY to entice customers, and then lower the APY over time.

How do I choose an online savings account?

While a high APY should certainly be a factor, rates change, so it is not wise to choose an online savings account based on interest rate alone. Some banks with the highest rates also have many strings and conditions, such as a high minimum balance requirement, or an APY that shifts based on your balance or drops dramatically after an initial promotional period. When selecting an online savings account, you should read the terms carefully while considering how much you are likely to deposit in your new account. It is also worth considering the quality and availability of an online bank's customer service, as well as ease and convenience of the online banking interface.

How do I open an online savings account?

Once you have chosen an online bank account, you can apply online. Some online banks also require a paper application to be signed and mailed. The ease and speed of this process varies widely, depending on the bank. Once your account has been approved and opened, you can deposit funds, which will immediately begin earning interest.

Do I have to change banks to open an online savings account?

No. Most online banks do not require you to maintain a checking account in order to open an online savings account. You can usually create an electronic link between your existing checking account and your new online savings account, in order to facilitate transfers.

How do I deposit money in an online savings account?

Deposit methods vary depending on the particular online bank, but there are several different methods of transferring funds electronically. Most banks will allow you to conduct transfers online. You can set up direct deposit or automatic transfers. You can also send a check or wire money. Some online savings accounts include an ATM card, which allows you to deposit or withdraw funds from any ATM.

How do I access my money?

Generally, you can electronically transfer money from your online savings account to your checking account. You can also request that your online bank mail you a check. And if your account includes an ATM card, you can use it to withdraw cash from any ATM.

How often can I access my money?

Federal law limits the number of withdrawals and transfers from all U.S. savings accounts to six per statement cycle. There is usually a $10 fee for each transaction that exceeds this limit. In general, online savings accounts are not designed for frequent access. Although your money is liquid and always available, this type of account should not replace a checking account. There is never a limit to the number of deposits you can make per month.

Are online savings accounts insured?

All of the online savings accounts reviewed on NextAdvisor.com are FDIC insured up to $250,000 per depositor.

What is a Certificate of Deposit (CD)?

A Certificate of Deposit, or CD, is a type of investment product offered by financial institutions, such as traditional or branchless banks and credit unions. Similar to savings accounts, CDs accrue interest on the account's balance; however, CDs generally have higher minimum deposits and a set term during which the money is to mature undisturbed. In return, their interest rates are usually higher than those of savings accounts. Also, withdrawing money before the end of the term almost always results in penalties or termination of the account, unless the CD is designated as penalty limited or penalty free.

How does NextAdvisor.com review these online savings accounts?

We thoroughly researched all the online savings accounts in this category, comparing interest rates, minimum balances and support options. We also looked at monthly fees, tie-in bonuses and how many withdrawals you can make per month. After the initial review period, we constantly monitor the saving account providers' sites for any service changes or specials.

We only include online savings accounts on our site that we believe offer a good value proposition. If there is a provider you know of that is not on our site, you can be fairly certain we did not rate that provider highly enough to include in our comparison. If you think we are missing a quality online savings account or have any other suggestions or comments, please visit our contact us page.

Top Savings Accounts

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Bottom line: With a high APY, $0 minimum balance and no minimum deposit to open, Ally Bank sets the standard of online banking
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Bottom line: Offers more simplistic (if not limiting) features; extremely competitive APY that's perfect for someone planning to save any amount
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Bottom line: Decent APY for low balance savings accounts and competitive CD rates makes Discover a well-rounded service
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Bottom line: An older direct bank with the resources of an established bank; while APYs aren't the highest, features like goal tracking and kid-friendly banking options make it more appealing
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Bottom line: CD rates and sign-up bonus rates may appeal to some; less-than-great standard APYs and branches in Florida make it fairly similar to traditional banks
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Bottom line: APYs only outcompete those of traditional banks; however, the service excels at accessibility and is a strong contender among the brick-and-mortar banks

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