You’ve probably already heard a lot about the benefits of opening a savings account. You haven’t? Don’t fret—we’ve got you covered.
The key to making a savings account work for you is to pick one with a high yield. This is where online-only banks—i.e. banks that don’t have IRL branch locations—shine. Most online-only banks have higher interest rates on deposit accounts than regular banks, so your money will grow faster. Many also have low or no fees to keep an account open, making them good options for almost every type of banking, from checking to savings to loans. Popular online-only banks include Ally, TIAA, and Bank of Internet USA.
Before you yank your money out of the regular bank, though, consider the pros and cons of online banking:
You know how those banks you walk into often have high ceilings, shiny floors, and tons of tellers? Online-only banks don’t pay the rent or maintenance costs on a bunch of locations, nor do they employ as many banking professionals. Online banks save money on overhead costs and pass some of those savings on to you with account perks.
You might be paying a small monthly fee to your bank just for “maintenance.” Online-only banks typically entice new customers with the promise of very low fees or, better yet, none at all. Some banks offer a mixture of no minimum deposits, no minimum balances, and no service fees. For instance, Independent Bank does away with minimum balance requirements. Online banks like Chime also don’t charge monthly maintenance fees or overdraft charges. The company instead rounds each purchase up to the nearest dollar and puts the difference into an online savings account. The downside is you won’t earn much in interest.
The typical interest rate on a regular savings account at a brick-and-mortar bank is very, very low. The best savings accounts at online banks will offer APY rates upward of 1.60 percent, according to NerdWallet. That’s a much better deal than the national average APY, 0.07 percent. Some traditional banks even offer a measly 0.01 percent APY—so the odds are in your favor that you’ll find a more favorable rate with an online bank.
Online-only banks are also great for automating payments. You can set up your direct deposit to an online bank and pay your recurring bills with it. You know how you usually have to input your account info on different websites, each for a separate bill? With an online bank, you can list each company that bills you and authorize the bank to make payments on your behalf, according to NerdWallet.
If you’re trying to transfer funds from your online-only account to another bank or to someone else, the process can be super slow, so expect delays. These accounts aren’t a great option if you need emergency cash.
Sometimes you really just want to talk to someone who’s not automated. Or you don’t want to have to sift through a FAQ section on a website. Online banks also might not offer other services like a brokerage account or investment advising.
Perhaps one of the most obvious downsides of online-only banks is the lack of ATM availability. While larger banks have multiple ATMs available to customers in any given city, you’re more or less out of luck with an online-only bank. Some online-only banks do partner with ATM networks like Allpoint or MoneyPass, but don’t expect the same accessibility.
If you keep in mind the limited ATM accessibility, then you can probably guess it’s also difficult to deposit cash with an online bank; you’ll have to rely on another bank to make the deposit. If you’re dealing with a lot of cash transactions, whether for your business or because you believe in a cash-only budget system, then an online bank isn’t the best option.
Choosing a bank that suits your needs will ultimately depend on your unique situation. You may find it makes sense to mix both types of accounts so you reap the benefits of a brick-and-mortar place, as well as an online-only bank.