Pros and Cons of Online Savings Accounts
In this digital age, opening an online savings account is often as easy as creating a social media account. But the idea of banking online is still foreign to some people. If you haven’t already done your banking online, then you may not know how it works. To help you understand online banking, we’ve analyzed both the pros and cons of online savings accounts.
Consider this an online savings account guide. We want to help you make more educated decisions about bringing your banking into the digital age.
Pros and Cons of Online Savings Accounts
Pros of Online Savings Accounts Explained
Higher interest rates
When there are fewer costs, such as lower overhead expenses, you can often expect savings to be passed on. And online savings accounts are no different. So, you may financially benefit from a lack of physical branches. For example, you typically see higher interest rates online compared to accounts from physical banks.
More specifically, you’ll often find that online savings accounts have higher annual percentage yields compared to savings accounts from brick-and-mortar banks. For this reason, online savings accounts may mean more money in your account without you having to lift a finger.
Insured by the FDIC
The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by Congress to maintain stability and public confidence in the nation’s financial system. With most online savings accounts, your money is insured by the FDIC up to $250,000.
This means that if your bank were to fail and have to close, for whatever reason, your money would still be safe up to this amount. So, in short, online banking is safe. As with all of these pros and cons, It’s important to do your own research to understand your specific bank’s policies.
Fewer or zero fees
We established that online savings accounts often have better interest rates, but the savings typically don’t stop there. Since online banks don’t have the same costs that physical banks do, online banks can often get away with charging lower or no fees. For instance, there’s typically no minimum balance to open an account or maintain to avoid fees.
Arguably the biggest benefit is that online savings accounts are convenient. You’re no longer tied to a physical bank location. Through mobile banking apps, you can deposit checks, review your balance, send transfers, and take care of all of your standard banking tasks from the convenience of your phone, no matter where you are. Alternatively, you can do your online banking from your laptop or desktop computer.
This not only frees you up from the time it takes to go to the bank, but it also frees you up from the frustrations of having to wait in line. You can even create accounts through most online banking apps in a matter of minutes — a task that, in a physical bank, might require a lot longer.
Cons of Online Savings Accounts Explained
If you’ve grown up depositing money and checks through ATMs, then switching to an online savings account might take a little getting used to. In the world of online banks, it’s more common to deal in online transfers and direct deposits than in cash.
This isn’t to say that you can’t deposit cash whatsoever — some online banks accept cash or have in-person locations that do. But you’ll find it may be more difficult with an online savings account compared to a savings account with a physical bank.
Emergency withdrawal issues
Given that it’s a savings account, you likely won’t be withdrawing often, but in cases of emergency, it may not be as easy to get cash quickly. As touched on above, finding an ATM or physical location to withdraw from in the first place can be an issue. Plus, if you can’t find an in-network ATM, then there may be a fee.
Less face-to-face interaction
If you’re the type of person that enjoys going to the bank because of the friendly faces that greet you when you walk in the door, then it’s important to know that online banking is a lot less personal. While you can certainly still get customer support on the phone or via messaging, it might not feel as personal as talking to someone in a physical bank.
Select product line
Whereas physical banks tend to have a diverse selection of financial products to choose from, online banks tend to be more specialized. You may find that some online banks only have savings accounts and checking accounts, while others may have a more complete suite including credit cards.
The Bottom Line of Online Savings Accounts
If you’re looking to take advantage of higher interest rates, lower banking fees, and greater convenience, then an online savings account may be a good fit. However, if you deal in a lot of cash or value human interaction, then choosing a bank with in-person capabilities may be a better option.
As you compare the best online banking providers, you’ll probably find that some top banks provide the best of both worlds. So whether this is your first savings account or you want to open an additional savings account, it’s worth exploring online savings accounts.