What is an online savings account?

Banking, like so many things we do these days, has largely moved online. With that shift has come an array of online-only banking options, including online savings accounts.

But what is an online savings account? Banks with brick-and-mortar locations as well as banks that exist solely online may offer online savings accounts. These accounts may come with a variety of benefits like more mobile banking features, higher interest rates, lower fees and lower minimum balance requirements than you might find with a traditional savings account.

For people who are used to managing most of their lives from their smartphone or computer screen, an online savings account may be a natural fit. It may even offer extra conveniences over a traditional account. For example, you can easily move your money to and from your 360 Checking and 360 Performance Savings accounts.

While every online savings account has its own features and options, understanding how these accounts work can help you decide if one fits your savings goals. Lindsay Dell Cook, CPA, president and founder of a personal finance and small business consulting firm, explains the benefits and considerations to keep in mind.

So, we’ve answered the question, “What is an online savings account?” But understanding how it works can help you decide whether it’s the right fit for your savings goals.

Instead of having to find your way to a physical bank branch, Cook says you can typically make a deposit into an online savings account by depositing a check online or through a mobile banking app. You could also transfer funds from a different existing account.

Other than that, most online savings accounts work very similarly to traditional savings accounts. In general, they give you a place to keep your money as you save up for emergencies or a future purchase, Cook says.

“The biggest benefit of opening an online savings account is usually additional interest offered,” Cook says. “Compared to a brick-and-mortar bank, online savings accounts tend to offer at least another 1% of interest, but often even more.” If you’re looking for a great online option, 360 Performance Savings offers a high rate to help your balance grow.

If you like to do everything from your phone or online, online savings accounts are often convenient for viewing your balance, making transfers and even depositing checks.

Cook finds online savings accounts particularly useful for money you may need immediately. “It can be a great place to house your emergency fund so you’re not using that account for things that aren’t real emergencies,” she says.

Many online savings accounts offer the same Federal Deposit Insurance Corporation (FDIC) insurance that traditional savings accounts do, according to Cook. Deposits are insured up to at least $250,000 per depositor, per FDIC-insured bank, per ownership category. Cook recommends always confirming that an account is FDIC insured before you open it.

An online banking platform may be an FDIC member itself, or it may partner with a member bank to offer FDIC-insured accounts to its customers, Cook says. You will often find an online bank’s FDIC status featured in multiple places on its website.

You can add to an online savings account regularly in a couple of ways:

Cook often advises her clients to schedule a certain amount of money to transfer from their checking account to their savings account on each payday if they’re paid on a regular schedule. “That way, the money is out of your account before you start spending from the paycheck,” she says.

Putting that advice into practice can be simple when you set up automatic savings with Capital One, where you can move money from your checking account into your savings without having to think about it.

Cook notes that not all employers offer this convenience, “but it’s often the option I see clients have the most success with.” She also points out that this savings tactic shouldn’t replace any contributions you are making to your retirement accounts, health savings accounts or other important accounts.

If you’re transferring money from a checking account at a different bank, Cook says to confirm whether the bank charges a fee for external transfers. “It may charge a fee, even if the online bank doesn’t,” Cook says. If it does, then regular transfers might not make financial sense unless you switch to a new bank.

You typically can’t easily pay bills from an online savings account. For that, Cook suggests looking into an online checking account. “Most online banks today offer both types of accounts,” Cook says. “That’s convenient because it allows you to transfer money from your online savings account to your online checking account quickly and pay bills from there.”

Similar to opening an online checking account, here’s how to open an online savings account in 5 steps:

This step may take some time, but it’s important to know that the account you’re opening will actually work for you.

• First, check to ensure that the account is FDIC insured. If it’s not, find one that is.

• Next, look at the fees, minimum balance requirement and interest rates/rewards if they’re offered. This will help you compare accounts according to how well they’ll support your savings goals.

• Look for quality customer service and a well-designed mobile app. Whether they have a physical location or not, online banks often offer customer service to answer questions and resolve issues. And make sure the mobile app has the features you need and is easy to navigate.

Once you’ve settled on an online bank, you’ll create a profile on the website. Be sure to set a strong password that’s long, unique and hard to guess.

Expect to complete an application that asks for your identifying information, including your Social Security number and contact information. This is why it’s important to only open an account with a provider you trust.

After entering your information you may need to select the type of account you’re trying to open, if you haven’t already. In this case, you’d choose an online savings account.

The final step is to put some money into your online savings account. If the account comes with a minimum deposit requirement, you’ll have to deposit enough to meet it. This is typically done by transferring funds from an existing account into your new online savings account, which you can do online or from the mobile app. You don’t need a large deposit to start saving. With no minimum balance required, you can open a Capital One 360 Performance Savings account with any amount.

An online savings account can be a convenient way to save money while taking advantage of potential features like competitive interest rates, mobile banking tools and fewer fees. Before opening an account, consider your savings goals and compare options to find an account that fits your needs.

Whether you’re just starting to save or looking for a new account, these key takeaways can help guide your decision:

• Online savings accounts may provide a secure place to keep your money while offering convenient ways to deposit, transfer and manage your savings. 

• Features like FDIC insurance, competitive interest rates and easy mobile access can make online savings accounts a useful option for emergency funds and future goals. 

• Setting up automatic transfers or paycheck deposits can help you build savings consistently and make progress toward your financial goals.

Once you find an account that matches your goals, getting started can be quick and simple. A Capital One 360 Performance Savings account lets you open an account from your couch in about 5 minutes.