Online savings accounts allow you to build your financial future from the comfort of your home. The accounts give you earnings while simultaneously safeguarding deposits. Select a regulated online financial institution to enjoy a sense of freedom while banking from anywhere in the world with a tap of your finger.
What is an Online Savings Account?
The online savings account definition states that it is a virtually-focused bank account designed to help you save money and earn interest. An online savings account description explains that the amount of interest you earn depends on the specific savings account you choose and the interest rate it pays. Online-focused financial institutions usually do not have physical locations, which allows them to save money. Online savings accounts remain a strong alternative to traditional bank savings accounts and can prove useful for on-the-go people.
Step-By-Step: How Does an Online Savings Account Work?
Learn how an online savings account works by exploring this step-by-step guide detailing key factors such as how to open an account and make deposits.
Account Opening
You will usually need to fill out an application when opening an online savings account. The application requires your personal information including proof of identification. Additional verification documents include contact details, proof of address and your social security. Have documents like your driver’s license readily available to streamline the account opening process.
One key benefit of opening a bank account is that the institutions do not check your credit score, so you can open one with less-than-stellar credit.
When opening your account, think about setting up automatic features or balance alerts. Automatic deposits create a set schedule that can boost your savings with a minimal amount of effort.
Deposits
An online account offers multiple funding opportunities ranging from electronic fund transfers to direct deposits and mobile check deposits. Mobile check deposits make it easy to take a picture of your physical check and deposit it.
Some online savings accounts have minimum and maximum deposits. Research accounts to find opportunities that offer a $0 minimum balance.
Consider linking an external account to expedite the funding process. In many cases, you can speed the deposit process by following instructions and linking accounts when needed. To promote faster deposits, think about linking two accounts from the same financial institution.
Earnings
Think about using a high-yield savings account to earn better interest. Online savings accounts may offer variable interest rates. Explore promotional offers to get the best account opportunities.
Accessibility
Online savings accounts provide can be more accessible because your funds can be reached and moved around from the convenience of a mobile app. Virtual accounts mean you don’t have to drive to a physical location to have your banking needs met. In contrast to traditional savings accounts, online savings accounts have lower fees and higher interest rates.
It’s possible to set up budgets, text alerts and automatic transfers from the convenience of a mobile app. You can review your detailed account activity from the palm of your hand.
Withdrawals
To withdraw funds, use electronic transfers or ask virtually-based institutions to send physical checks. Review the guidelines related to your bank to make sure you know about potential withdrawal restrictions. Search for possible fees including charges associated with sending funds between different financial institutions. Think about linking savings and checking accounts located at the same bank to expedite transfers. Linked accounts transfer funds faster and have minimal transfer fees. You can automate transfers to help improve your online savings account.
FDIC Insurance
The Federal Deposit Insurance Corporation (FDIC) was designed to improve the public’s faith in banking institutions. The FDIC offers insured financial institutions such as banks and credit unions deposit insurance. The FDIC covers up to $250,000 per depositor and per insured bank. The insurance is intended to safeguard accounts during times of turmoil such as bank failure. Make sure an online bank is FDIC-insured to protect your funds from loss.
Security
In terms of security, online accounts have multiple safeguards and controls in place to promote account safety. Online accounts implement firewalls, fraud monitoring technology and encryption to safeguard against theft.
To bolster your safety, use a strong password, change your passwords frequently and avoid using the same password for multiple accounts. It’s usually a good idea to use different passwords to make it more difficult for bad actors like hackers to access multiple accounts at the same time. Most online banks use two-factor authentication and activity alerts.
Consider using a virtual private network (VPN) while accessing personal information on a public network like shared Wi-Fi. The VPN creates a secure connection to the internet that can prove useful when handling sensitive financial information.
Are Saving Accounts Safe?
Discover the exceptional safety provided by online savings accounts.
Regulated Banks
Accounts are regulated and overseen by government agencies like the FDIC and the Federal Reserve. The FDIC as well as other regulatory bodies monitor banks to ensure compliance and larger economic stability. Multiple agencies look over banks to encourage transparency. Regulations come from both the federal and state government.
Risk Mitigation
Savings accounts are usually viewed as low-risk investments because the funds are insured by government agencies. You can lose your principal when you invest in the stock market, but savings accounts provide a guaranteed return in the form of your principal plus interest, which offers small but consistent growth. Know your level of risk tolerance before investing.
Established Track Record
For decades, banks have provided savings accounts. Over the years, banks have implemented additional guidelines and safety measures to protect customer funds.
Modern Solution: Online Savings
Online savings accounts offer unique opportunities compared to traditional brick-and-mortar savings accounts. Online financial institutions offer an impressive selection of safety features to streamline and fortify the investing process. The accounts have a high level of accessibility that can prove useful when traveling or banking outside of normal business hours. Explore various online savings accounts to decide which one might work best for you.
Frequently Asked Questions
How can I access and manage my online savings account?
Access and manage your online savings account from a computer or use a mobile app provided by the institution.
Are there fees associated with online savings accounts?
Online savings accounts have a minimal fees. Potential fees can include wire transfer fees and automatic clearing house (ACH) transfer fees when you move funds between different financial institutions.
Is my money safe in an online savings account?
Yes, your money will be safe if you select an FDIC-insured bank.
About Alison Plaut
Alison Plaut is a personal finance writer with a sustainable MBA, passionate about helping people learn more about financial basics for wealth building and financial freedom. She has more than 17 years of writing experience, focused on real estate and mortgage, business, personal finance, and investing. Her work has been published in The Motley Fool, MoneyLion, and she is a regular contributor for Benzinga.