How Online Savings Accounts Work (& the Highest Online APYs)
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Digital banking might seem fancy terminology for checking your bank account from your phone, but today, many Americans bank at digital financial institutions. Even if you aren’t looking to switch banks, you can use one of their most popular offerings — online savings accounts. But what exactly is an online savings account, and how does it work? I’ll take you through everything you need to know about online banking.
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What is an online savings account?
A savings account is where you can safely store and earn interest on your money. This means the bank pays a small percentage to keep your money deposited at their institution. While annual percentage yields (APYs) vary, some banks offer savings accounts that accrue as much as 1% interest.
The funds you deposit within a savings account are insured for up to $250,000 by the federal reserve (look for member FDIC insurance). Even if the bank sails or suffers financial losses, your money is still guaranteed.
An online savings account offers all of the features in a digital format. Instead of visiting a bank branch and handing the teller cash or checks to deposit, you deposit funds digitally, directly from checking accounts, via direct deposit, money transfers, and other digital means.
Traditional banks and online-only institutions can both offer online savings account options. For instance, if you do not have a CitiBank nearby or even in your state, you can still open an online savings account with them.
Types of online savings accounts
Like traditional savings accounts, there are many online savings accounts to consider. These include traditional savings accounts, money market accounts, and certificates of deposit.
Traditional Savings Accounts
These savings accounts have a simple premise: earn interest on deposited money while allowing you to access your funds whenever needed. Most Americans will have a traditional savings account, while the other two savings options are a little less common.
Money Market Accounts
Money market accounts can be considered the next step up from a traditional online savings account. In exchange for depositing and maintaining a higher account balance in these accounts, you’ll earn more interest on your money. Some money market accounts even offer perks similar to checking accounts, such as the ability to write checks and withdraw funds at ATMs.
Related: Best Money Market accounts
Certificates of Deposit
A certificate of deposit or CD is the last type of online savings account. This account requires you to deposit your money and not withdraw it for an agreed-upon period. In return, you receive a higher interest rate than you would if you had immediate access to your funds (like with traditional and money market accounts).
How to open an online savings account
You can open a mobile banking savings account from your computer, tablet, or smartphone by visiting the bank website you want to work with. You’ll need to provide personal information like your driver’s license number, address, and social security number.
You will need to make an opening deposit, which can be done through a wire transfer or by automatic transfers through connected banks. For example, transfer funds through a connected checking account, which some banks require you to open accounts, so be sure to do some research before choosing a financial institution.
Start saving in 3 simple steps
1. Use Capital One Shopping for Free. It takes seconds to add Capital One Shopping and works with all major browsers.
2. Shop as you normally do. Capital One Shopping's magic works quietly in the background, searching for discounts on your purchase.
3. Save effortlessly. Ready to save? Just click Capital One Shopping and the best deal discovered will be applied to your cart.
Best high-yield online savings accounts
Now that you understand what an online savings account is, how it works, and the options available, I will run you through 7 of the top online savings accounts I recommend.
SmartyPig by Sallie Mae – 4.25% APY
You might be familiar with Sallie Mae if you went to college and had student loans funded by this financial institution. In addition to loans, Sallie Mae now offers a competitive high-yield savings account called SmartyPig.
This account is ideal if you want to save money and earn interest. It is an online-only savings account, meaning you’ll need another bank account (checking or savings) to transfer money.
What I love most about this account is its high APY. Right now, account holders can earn up to 4.25% APY with this savings account, which is one of the highest rates.
You can sign up for a SmartyPig account at SmartyPig.com.
Citibank Accelerate Savings Account – 4.45% APY
The Citibank Accelerate Savings Account might be exactly what you need if you’re searching for a high-yield savings account that offers in-branch and online savings account services. Depending on your zip code, this national bank offers customers a high APY of up to 4.45%.
What I love about this high-yield savings account is that there’s no limit on how much you can earn and no tiered APYs like with Smarty Pig. You also have ATM access to your savings account. However, depending on where you live, you may not qualify for the 4.05% rate, so this option isn’t for anyone.
If you’re not ready to commit to a fully online bank but want to give digital banking a shot, this savings account can earn you one of the highest interest rates currently available. Make sure you live near Citibank to take advantage of in-branch services.
You can find out if you’re eligible for the Citibank Accelerate Savings Account at Citibank.
Ally Bank – 4.20% APY
Ally is another top online-only bank with an online savings account. Ally is well-known for its steady and competitive savings account interest rates and is almost always on par or above its competitors’ rates.
Ally’s savings account now offers a 4.20% APY on all balance tiers with no monthly maintenance fees. If you’re interested in completely switching to an online bank, Ally might be a great choice since they also offer a free checking account. I love that these Ally accounts are free with no minimum requirements.
Although Ally’s savings account does not allow ATM access, if you use your free checking account, you’ll receive a debit card and be able to quickly move money from one account to the other via their mobile app or website.
You can apply for a savings account with Ally at Ally.com.
Discover Online Savings Account – 4.25% APY
Known for its credit cards, Discover offers FDIC-insured online banking with 5x the interest rates over the national average for savings.
One of the best things about a Discover savings account is interest is compounded daily rather than monthly. Plus, it does not charge a monthly or ISF fee or have a minimum initial deposit requirement.
You can open a Discover savings account at Discover.com.
Capital One 360 – 4.25% APY
Capital One touts itself for offering 5x the average APY; its rate is lower than American Express National Bank. Still, it's a high-yield, fee-free savings account that can help you reach your savings goals faster.
No matter how much you have in your account each statement cycle, the account earns 4.25%.
The accounts do not have debit cards, ATM cards, or check-writing capabilities and are insured at up to $100,000.
You can open a Capital One savings account at CapitalOne.com.
American Express National Bank – 4.25% APY
Another bank best associated with credit cards offers deposit accounts, too. Depositors are insured for up to $250,000 through deposit insurance and are not required to carry a minimum balance. AMEX won't charge you monthly fees if you stay within its nine withdrawals or transfer limit each month. That's higher than the Federal Reserve Board recommendation of six per month. There is no limit to the number of deposits.
AMEX also provides CDs at up to 4.75% APY that can be locked in for six months to 5 years.
You can open an American Express savings account at AmericanExpress.com.
Synchrony High Yield Savings – 4.75%
You won't need a minimum balance for Synchrony's online savings account. Offering a mobile app for your banking, you can transfer money between your Synchrony account and other banks and withdraw money using an optional ATM card. There are no ATM fees; if you are charged a fee at another bank, you can be refined up to $5 per statement cycle.
You can open a Synchrony savings account at Synchrony.com.
Start saving in 3 simple steps
1. Use Capital One Shopping for Free. It takes seconds to add Capital One Shopping and works with all major browsers.
2. Shop as you normally do. Capital One Shopping's magic works quietly in the background, searching for discounts on your purchase.
3. Save effortlessly. Ready to save? Just click Capital One Shopping and the best deal discovered will be applied to your cart.
Summary of online savings accounts
Bank | APY | Minimum |
SmartyPig High-Yield Savings Account | 4.25% | $0 |
Citibank Accelerate Savings Account | 4.45% | $0 |
Ally Bank High-Yield Savings Account | 4.20% | $0 |
Discover Online Savings Account | 4.25% | $0 |
Capital One 360 Performance Savings | 4.25% | $0 |
American Express High-Yield Savings Account | 4.25% | $0 |
Synchrony High-Yield Savings | 4.75% | $0 |
Costs and fees of online savings accounts
Some banks will charge you fees for maintaining and using your savings account. The good news about opening an account with an online bank is that they typically do not charge the same fees as brick-and-mortar accounts.
Many online savings accounts (like Ally, SmartyPig, Axos, and Vio) do not have monthly fees, while traditional banks offering online savings accounts (like CitiBank) often do, but have ways of waiving these fees.
Other fees to look out for include ATM fees and overdraft fees.
Pros and cons of online savings accounts
Opening an online savings account has its advantages and drawbacks. I’ll take you through some of the important points to consider.
Pros
- Higher interest rates and lower fees. One major perk to switching to an online savings account is taking advantage of higher interest rates and lower account fees. Many online savings accounts have no monthly fees and no hidden fees to worry about and offer a high APY on all balance tiers.
- Top-of-the-line digital tools. Since online banks are in the digital business, their online tools and mobile apps tend to be more robust, intuitive, and faster than traditional banks. You can manage all of the features of your savings account from anywhere, round the clock.
- Free checking services. One of the main benefits I love about online banks is that many also offer free checking services (with debit card access) that allow you to fully switch your banking accounts to a digital platform. Since free checking accounts are hard to come by when banking with a traditional brick-and-mortar bank, this is a real advantage digital banks have over the competition.
- No need to switch banks. Are you nervous about making the transition from your current bank to an online institution? Opening an online savings account is a great first step if you choose an online bank with no fees or deposit requirements. This allows you to test out your new account with no commitment to stay if you decide you prefer your current bank.
Cons
- No physical branch locations. Since many online savings accounts are offered by online banks, you won’t be able to sign up for an account or get answers to questions by visiting a physical location. Instead, you’ll call a customer service line, email, or reach out via chat.
- No ATM service. Although some online banks like Axos do offer ATM service for traditional and high-yield savings accounts, most online banks do not. Some, like Ally, offer ATM services for checking accounts that you can then link to your savings account, to move money easily for your phone or computer.
- Additional services may be limited. If you love using one financial institution for all of your banking needs, it’s important to know that not all online banks can offer the same suite of services. While Ally and Axos both provide checking, savings, money market savings, auto loans, mortgages, personal loans, and investing services, this is not the norm for all online banks. Vio Bank and Chime, two popular online banks, only offer checking and savings accounts, while Smarty Pig is only an all-in-one savings account.
The bottom line
Opening an online savings account can help you collect more interest on your money. If you’re looking for a more traditional savings account, opt for an online high-yield account if you want a high interest rate. If you want ATM access to your account, an online money market account might be the right choice. Lastly, if you don’t need to touch your money for some time, an online CD may earn you the most interest.
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Writer
Courtney Johnston is a freelance writer, specializing in finance, travel, and health. She has written for The Chicago Tribune, Benzinga, BestReviews, Mashvisor, Fundera, MoneyGeek, and The Culture Trip. She also teaches writing instruction at the University of Indianapolis. Courtney currently resides in Indianapolis.
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