Online Savings Accounts Explained
A savings account offers a key advantage: your money doesn't just sit idle like in a regular checking account; it grows through interest. These days, thanks to the Federal Reserve's efforts to combat inflation, the Annual Percentage Yield (APY) rates on savings accounts are notably higher compared to previous years. The national average yield for savings accounts is currently at 0.59% APY. While it's not a path to millions, a savings account presents a financially prudent way to earn a return on your money.
Savings accounts are a valuable tool for various financial goals, from building an emergency fund to saving for a specific purchase like a home. By linking your savings and checking accounts, you can establish automatic monthly transfers, ensuring consistent progress toward your savings objectives.
In the realm of online banking, you gain swift access to a diverse array of savings account options. This enables you to efficiently compare factors such as high Annual Percentage Yield (APY) rates, associated fees, and additional account benefits. Moreover, online banking provides enhanced flexibility in managing your finances and real-time tracking of your monetary activities. This guide will comprehensively walk you through all you need to know about online savings accounts, catering to a wide audience with varying levels of financial expertise.
Can I Open a Savings Account Online?
Yes, virtually all major banks provide online services. This modern convenience allows people to manage their finances with just a few clicks, eliminating the need for physical visits to a bank branch. Nowadays, online banking offers a wide range of capabilities.
Most banks offer a selection of savings accounts that can be opened online. You can explore the options to find the one that best suits your needs. The process of opening a new savings account is quick and straightforward, allowing you to start saving promptly.
What Are the Different Types of Online Savings Accounts?
There are various types of savings accounts you might encounter. Each type is designed to meet specific needs, and they all come with their own advantages and considerations. Being aware of these options will help you choose the one that aligns best with your financial goals. Here are some of the most commonly seen types of savings accounts:
Regular Savings Accounts
Standard savings accounts can be a good fit for both short-term and long-term savings, especially if you're just starting out. The APY rates will usually be lower for a regular savings account when compared to the more specialized options we've outlined below. But if you expect to need to make regular withdrawals from your savings account, a standard savings account may be your best choice, as other types of accounts will charge extra fees the more withdrawals you make.
High-Yield Savings Account
If you are looking to get the best APY rates possible, then high-yield savings accounts will be worthwhile to consider. You will get a greater APY rate than a regular savings account, allowing you to grow your savings faster. But in return for the higher rates, you will normally have less access to your money. Expect to be limited on the number of monthly transactions you can make. High-yield savings accounts also typically require a higher minimum deposit to open up compared to a standard savings account, so they may not be the best option for people with limited funds.
SEE: Simple Savings Calculator
Money Market Accounts
These types of savings accounts combine many of the aspects of a checking amount with those of a regular savings account. The APY rate will often be better than those offered in a regular savings account and you will also have the option to use a debit card to access your account funds. There will usually be a monthly fee charged for these types of accounts, with a higher minimum required deposit, similarly to high-yield savings accounts.
Certificate of Deposit (CD) Accounts
CDs are a way for you to earn a return on your money that will be fixed for a certain period of time. With a CD, you are agreeing to leave your money in this account until the CD matures. Some CDs will have term lengths of just three months, while others might take ten years to mature.
You will be able to lock in an APY rate for the entire period, with this rate usually being better than most other types of savings accounts. CDs have a tiered APY rate system depending on how much you deposit and the length of time you are committing these funds - the longer you commit to keeping the money in the account, the more interest you can expect your money to earn (today’s CD rates are around 1.24 - 1.55%). If you find yourself needing to withdraw some of the money before your CD matures however, expect to pay a penalty fee.
Pros & Cons of Online Saving Accounts
The advantages of using an online savings account are plentiful. You can quickly see all of the different online providers and compare them with traditional bank offerings.
When choosing the online savings account, you can easily shop around for the best APY rates or a particular type of savings product that fits your goals. You can set yourself on a path to financial success as your money will be earning interest, rather than just sitting in the bank. As one of the most common financial products, you have a great range of different types of savings accounts to choose from, so chances are you’ll find something to suit your needs.
Online banking itself has endless advantages. Most notably, you have the ability to efficiently conduct important banking processes from the convenience of your mobile phone or computer. You can also keep an eye on all transactions in real-time, making sure that nothing untoward is happening.
There are not too many drawbacks associated with using online savings accounts. Namely, some people who are not very tech-savvy might prefer to conduct their banking in-person. Additionally, although interest rates are higher than usual in the current economic environment, the potential for return on the money in your savings account is not as high as it could be from riskier investments, such as stocks and bonds. However, if your money is sitting in the bank regardless, you might as well be earning some sort of return on it.
Choosing the Right Type of Online Savings Account
- Research: It is important that you research the various savings account types to see which will be the best fit for your needs. It is vital that you only consider online providers and banks that have built up a strong reputation for treating their customers properly.
- Account type: Once you figure out the type of savings account you need, you can shop around for the best rates. This can be easily done through Lendstart, as you will find expert reviews of all of the leading providers of online savings accounts. This will save you a lot of time and hassle.
- Minimum balance requirements: Minimum balance requirements refer to the amount of money that an account holder must maintain in their savings account to avoid fees and penalties. These requirements vary by the financial institution and account type, and they can range from as little as $5 to thousands of dollars. For those looking to open an online savings account, it's important to consider the minimum balance requirement as part of their decision-making process.
The Bottom Line
Opening an online savings account is a straightforward process that won't consume much of your time. After pinpointing the ideal savings account category for your needs, the next step is finding the bank offering the most favorable terms for that account type. In this endeavor, Lendstart stands as your reliable guide, offering a thorough understanding of all crucial aspects of your savings account options.