Banks and consumers often refer to online savings accounts as high yield savings accounts. Online banking provides customers across the nation access to the same high yield rates, regardless of location or membership. For those wary of online banks, physical banks offer traditional options that yield higher interest than a regular savings account, mainly money markets and certificates of deposits.
If you are using an online savings account (also known as a high yield savings account) the chances are good that you will enjoy an increased rate of return in exchange for less flexibility and mobility. Typically, transferring funds from an online savings account to a bank account may take a few days, which could be a significant disadvantage for some individuals.
Online High Yield Saving Accounts
Numerous banks provide high yield savings accounts online that offer higher interest rates than physical bank locations. Bankrate explains that online banks can do this because they save on operating costs that brick and mortar banks incur. You can open up online savings accounts, money market accounts and certificates of deposit through many of these online banks. Occasionally banks that double as credit card providers, such as Capital One, American Express and Discover, offer higher yields than competitors.
Pros of High Yield Savings Accounts
Online high yield savings accounts offer higher interest rates, typically without fees. You can easily transfer money between the account and your regular bank account as many times as you want per month. They also do not restrict how often you can transfer or withdraw your money. High yield savings accounts often offer a higher savings rate regardless of the amount you initially deposit, and you are not required to keep minimum balances. Your account receives the same insurance provided by the FDIC to traditional banks.
Cons of High Yield Savings Accounts
Online transfers between your physical checking account and your online savings account take a few days. So if you need money immediately, you may be out of luck. You can’t withdraw money from an ATM or at a physical branch unlike accounts held at brick and mortar banks. If the online bank closes, your money, up to the FDIC limit of $250,000, should be safe, but it may be more complicated to recover as all of your transactions occurred online. Also, if you run into issues, you can’t talk to someone face-to-face to solve the issue, which could reduce the speed of your transactions.
High Yield Savings Account Alternatives
Accounts such as certificates of deposit provide the highest rate of return regardless of whether you invest online or at a physical bank location. CDs typically offer higher rates than high yield savings accounts or money market accounts because you can’t touch the money for a set amount of time. For savers who need access to savings without penalties in a crunch, opt for higher yield online savings accounts or online money markets.
One of the primary differences between online money market accounts and online savings accounts is flexibility. Individuals who park their funds in online money market bank accounts can typically access their funds quicker and easier than they would with an online savings account, although savings accounts may provide a higher rate of return in exchange for less accessibility.
- Bankrate: 3 things to look for when opening a savings account
- Ally Financial: Money Market Accounts vs. Savings Accounts
- National Credit Union Administration. "Share Insurance Fund Overview." Accessed Sept. 6, 2020.
- FDIC. "Transparency & Accountability - Consumer Protection & Deposit Insurance." Accessed Sept. 6, 2020.
- Federal Reserve. "Regulation D, Reserve Requirements," Page 3. Accessed Sept. 6, 2020.
- Ally. "Online Savings Account: High Interest Savings, Rates & Reviews." Accessed Sept. 6, 2020.
- Capital One. "Online Savings Accounts: Performance 360." Accessed Sept. 6, 2020.
- Consumer Financial Protection Bureau. "What Is a Certificate of Deposit (CD)?" Accessed Sept. 6, 2020.