What Is an Online Savings Account?

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An online savings account is a savings account that doesn’t have any brick-and-mortar locations. Instead, you use online tools to deposit money and manage your account. Online savings accounts generally offer higher rates and lower fees than financial institutions with physical locations.

Definition and Example of an Online Savings Account

An online savings account is typically offered by a financial institution that doesn't have any brick-and-mortar locations in your area. Some are available only online, but some traditional banks may offer online savings accounts in areas where they don't have physical branches available. You can save and earn interest on your money, but there are no bank branches to visit. You can’t access your funds in person. You’ll use online tools to deposit money and manage your account instead.

Online banks have fewer overhead costs so their accounts usually have higher interest rates and fewer fees. Banking services are provided online or through the bank’s app.

Key Takeaways

  • An online savings account is an account where you can save money but with no in-person services.
  • Online savings accounts tend to have higher interest rates and lower fees.
  • With online accounts, any customer service issues that arise will have to be managed online or over the phone.

The benefit of opening an online savings account is that you can earn a higher interest rate and pay fewer fees.

In the U.S., the average interest rate on a savings account was 0.10%, as of July 18, 2022. In comparison, you can find rates more than 10 times the national average with online savings accounts. For example, Ally offers a 0.90% APY and Citi offers 1.01%.


When opening an online savings account, check the bank’s website to see if it's insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Association (NCUA). That way, your deposits will be insured up to $250,000.

How an Online Savings Account Works

A savings account is an account you open at a bank or credit union. You can use the account to deposit money, save for financial goals, and earn interest on your savings. If you open an online savings account, no branch locations are available. The advantage of this is that you can manage your account through your computer or smartphone. That means you have access to your account information no matter where you are. And unlike with brick-and-mortar banks, you’ll open your account online as well.

You’ll start by filling out an application and entering the following personal information:

  • Name
  • Date of birth
  • Address
  • Phone number
  • Social Security number

If you’re opening a joint account, you’ll have to enter the information for each account holder. From there, you’ll choose your account type, fund the account, and set up your login information.

To deposit money in your account, you can set up a direct deposit, transfer the funds from another account, or use the bank’s mobile app to deposit a check. You can either transfer the money to another account or do a wire transfer to withdraw your funds. However, you may have to pay a fee for each wire transfer.


When you’re shopping around for an online savings account, look for a bank with an extensive network of no-fee ATMs.

Pros and Cons of an Online Savings Account

  • Easy to set up

  • Earn more interest

  • Minimal monthly fees

  • Lack of personal relationships

  • No branch locations

  • Certain services unavailable

Pros Explained

  • Easy setup: It’s easy to open an online savings account. If you have the necessary documents on hand, you can open your account and deposit the funds that same day.
  • Earn more interest: Online banks don’t have to spend money maintaining physical locations, so they can offer higher interest rates. The average interest rate on a savings account was 0.10% as of July 18, 2022, but with an online savings account, you could earn an APY of more than 1%.
  • Minimal monthly fees: The exact terms can vary depending on the bank you choose, but most online banks charge minimal fees. For example, you may not have to pay any monthly maintenance, overdraft, or ATM fees.

Cons Explained

  • Lack of personal relationships: When you open an account at a brick-and-mortar bank, you build personal relationships with the employees and receive customized service.
  • No branch locations: If you have a problem with your account, you can’t visit a branch location to resolve the issue. All of your communication will be online or over the phone, which could be a problem for some people.
  • Certain services unavailable: Online banks can’t offer in-person services such as notarizing documents, offering a safe deposit box, or providing a money order.


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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. FDIC. “FDIC: National Rates and Rate Caps.”

  2. Ally. “Online Savings Account: High Interest Savings, Rates and Reviews.”

  3. FDIC. “FDIC: Deposit Insurance at a Glance.”

  4. Citi. “Online Banking.”

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