What is an Online Savings Account and How Do They Work?

From ordering groceries to scheduling appointments, many daily tasks now happen online, and banking is no exception. Today, many banks provide account holders with online dashboards where they can monitor balances and transactions, transfer funds, and more. However, some financial institutions operate solely online without any physical branches at all.

If you’ve ever wondered, “What is an online savings account?” — the answer is simple. It’s a savings account that exists entirely online, with no physical bank branch attached to it. These accounts provide the same basic functions as traditional savings accounts but are managed exclusively through websites, mobile apps, and ATM networks.

Let’s take a closer look at an online savings account description and compare it to a traditional savings account, so you can make an informed decision.

Benefits of Online Savings Accounts

Online-only banks often pass savings from reduced overhead costs directly to customers. These benefits include:

• Competitive interest rates: Online savings account interest rates are often competitive, sometimes offering higher annual percentage yields (APYs) compared to traditional savings accounts.
• Lower fees: With no physical branches to maintain, online accounts typically feature reduced or no monthly maintenance fees.
• Low or no minimum balance: Online savings accounts' typical minimum balance requirements are sometimes lower than those of traditional banks. Some require no balance at all to open or maintain an account.
• Convenient digital tools: Online banks emphasize user-friendly apps and tools that allow 24/7 access to balances, transfers, and even check deposits.

These features make online savings accounts appealing for individuals comfortable with digital banking. However, the decision shouldn’t be based solely on these advantages.

Comparison with Traditional Savings Accounts

Brick-and-mortar and online savings accounts both offer customers a place to securely store funds, and both typically pay interest. In addition, as long as the bank is insured by the Federal Deposit Insurance Corporation (FDIC), account balances are also protected up to the legal maximum, regardless of whether a bank has physical locations.^[1] However, there are also notable differences.

Access to Funds

Online accounts rely on digital transfers, ATMs, or mobile deposits. Cash deposits typically require visiting an in-network ATM or relying on third-party services. Traditional accounts allow in-branch deposits and immediate access to money orders and cashier’s checks. Some also offer notary services.

Face-to-Face Interaction

Traditional banks offer personalized services at local branches. Many customers find this helpful, particularly when dealing with complex transactions.

Range of Financial Products

Traditional banks may offer more specialized banking services. They may also provide a broader range of financial products, such as mortgages and investment accounts, offering comprehensive financial services under one roof.

Potential Drawbacks of Online Savings Accounts

When comparing online and traditional brick-and-mortar savings accounts, there are a few potential drawbacks to consider:

• Lack of physical access: Without a physical branch to visit, handling certain banking tasks may become inconvenient. For instance, depositing cash may require locating a compatible ATM or using third-party services, which could incur additional fees. Additionally, those who prefer face-to-face interaction for resolving account issues or discussing financial strategies may find online-only banking impersonal and less accommodating.
• Dependence on digital access: Online savings accounts are fully reliant on technology. As a result, outages, connectivity issues, or cyberattacks could temporarily disrupt account access. While digital platforms generally prioritize security and uptime, unexpected events could potentially leave customers unable to manage their funds when needed. 
• Potentially fewer services: Many online-only banks focus solely on providing basic banking options. Services such as certificates of deposit (CDs), small business accounts, or investment tools may be unavailable. This may be inconvenient for individuals seeking a one-stop financial solution to manage all aspects of their finances.

How To Open an Online Savings Account

It’s relatively simple to open an online savings account. Here are the steps you’ll likely take.

1. Research Your Options

Start by researching and comparing your options. Verify that the account is FDIC-insured and compare each account’s interest rates, fees, and minimum balance requirements. Consider the size of the ATM network, the process for cash deposits, and any other restrictions or requirements.

2. Choose the Account Type

Some online banks offer different types of savings accounts designed for specific needs. For example, you may choose a high-yield savings account, a joint savings account, or an account designated for a specific purpose, such as a Christmas account. Understanding the available options may help you choose the account that aligns with your savings priorities and long-term goals.

3. Complete an Online Application

Next, you’ll complete an online application, providing information such as Social Security number, name, address, and a valid form of identification. You may also have the option to designate beneficiaries who will inherit the funds in the account if you pass away. Remember to set up strong login credentials for secure access.

4. Fund the Account

Some online banks require a small minimum deposit to open and activate the account. Many online savings accounts accept funds through electronic transfers, direct deposit, or mobile check deposits.

Alternatives To Online Savings Accounts

If you’re drawn to the higher interest rates of online savings accounts but prefer the benefits of brick-and-mortar banking, there are other options to consider. These alternatives allow you to keep your accounts under one roof:

• Certificates of deposit: CDs offer fixed interest rates, often higher than savings accounts, in exchange for locking in your funds for a set term. They’re ideal if you don’t need immediate access to your money and want a predictable return on your savings. Many brick-and-mortar banks, including PNC, offer competitive CD options with flexible term lengths.
• Money market accounts (MMAs): These accounts combine the earning potential of a savings account with some of the accessibility of a checking account. MMAs often offer higher interest rates than standard savings accounts and allow limited check-writing or debit card access. They may be a great choice for those who occasionally need to access their savings.
• Traditional savings accounts: For those who value convenience and in-person service, a traditional savings account may still be the best fit. These accounts are straightforward, provide easy access to your money, and often come with additional services like access to a local branch and personalized financial guidance.

Balancing Convenience with Accessibility

Online savings accounts offer convenience and potentially higher returns but may not fully replace traditional banks. Brick-and-mortar locations continue to provide important services for those who value in-person interactions and a comprehensive suite of financial services. In some cases, maintaining accounts with both an online and brick-and-mortar bank may offer additional flexibility.

Is an Online Savings Account Right for You?

Deciding between an online or traditional savings account depends on your priorities. If maximizing interest rates and minimizing fees are top concerns, an online savings account may be a strong contender. Alternatively, if you value in-person service or frequently deposit cash, a traditional bank may better suit your needs.

At PNC Bank, we combine the best of both worlds, offering robust digital tools while maintaining local branch access for personalized support. Whether planning for short-term goals or building long-term wealth, PNC Bank offers customized savings solutions to meet your needs.

Frequently Asked Questions

Can I have both an online and traditional savings account?

Yes, many people maintain accounts at both online and traditional banks. This approach allows you to enjoy the higher interest rates and lower fees of online accounts while still accessing in-person services and cash deposit options offered by traditional banks.

Can I use an online savings account for everyday transactions?

Savings accounts are typically not designed for frequent transactions, regardless of whether they're held at an online or physical bank. Some banks may limit the number of withdrawals or transfers you can make each month, so they’re best suited for storing money you don’t need to access regularly.

Is it better to have an online bank or a physical bank?

It depends on your financial needs and preferences. Online savings accounts are convenient for those comfortable with digital transactions and may offer higher interest rates and lower fees. However, physical banks offer in-person assistance, cash deposit options, and, often, a broader range of financial services. Opening both types of accounts may allow you to enjoy the best of each option. 

These articles are for general information purposes only and are not intended to provide legal, tax, accounting or financial advice. PNC urges its customers to do independent research and to consult with financial and legal professionals before making any financial decisions. This site may provide reference to Internet sites as a convenience to our readers. While PNC endeavors to provide resources that are reputable and safe, we cannot be held responsible for the information, products or services obtained on such sites and will not be liable for any damages arising from your access to such sites. The content, accuracy, opinions expressed and links provided by these resources are not investigated, verified, monitored or endorsed by PNC.