Online banks, especially online savings accounts, have become increasingly popular over the past few years.
According to a recent Statista report, the number of online banking customers in the U.S. rose by nearly 24 million from 2014 to 2018. That number is projected to increase even more in the coming years.
So, what is it about online banks that have customers signing up in droves? Great benefits and high interest rates.
Benefits of Online Banking
A savings account acts as a secure way to store your hard-earned cash while also earning interest. An online savings account is a safe, reliable option for your money, and you can easily track your balance as you continue to make deposits and build your wealth.
Other benefits of online savings accounts include:
- Higher interest rates: Online banks have lower overhead (since they have no physical branches, bank tellers, etc.). Having fewer expenses typically means that online banks are able to offer significantly higher APYs to customers than traditional banks.
- Lower fees: Another perk of lower overhead is that online banks don’t generally charge their customers extraneous or excessive fees.
- Convenience: Many online banks are open 24/7, and you can access everything you need from your smartphone or computer. You no longer need to drive around looking for a branch open past 5:00 p.m. or on weekends.
Remember that, unlike a checking account, you’re not supposed to use your savings account daily (unless you’re making daily deposits). You use it to accrue wealth, save for something, or establish an emergency fund.
Banks with the Best Savings Accounts
Taking all of our criteria into consideration, these are the banks with the highest rating. If you’re stuck between two banks with seemingly good savings accounts, check out our bank and credit union reviews to help you decide. We looked at dozens of variables to help you determine which bank best fits your needs. Here’s our methodology.
Rates are current as of February 2023.
CIT Bank 0.40% APY (tiered) – By rewarding those who actively add to their savings, the CIT Bank Savings Builder Account helps people build their savings account balance while developing good saving habits. You’ll need $100 to open this account, but there are no account maintenance fees and you do almost all of your transactions through their app.
Discover Bank 0.40% APY – If you’re not sure about online banking, using a reputable, established company like Discover Bank should offer some peace of mind. Zero-fee savings, checking and money market products, along with industry-leading interest rates make Discover Bank a great option for online banking.
Synchrony Bank 0.50% APY – Similar to other banks on this list, Synchrony Bank offers an annual percentage yield that is significantly higher than the national average. If you are looking for a high-yield account to grow your savings, but also want ATM access to your funds, Synchrony is a good choice.
Ally Bank 0.50% APY – Ally offers high rates, low fees, an easy-to-use app, and great customer service. There are no physical branches for Ally Bank, but they offer a $10 monthly credit to apply towards ATM fees, making it easy to use an ATM if you need one.
Barclays Bank – 0.40% APY – Barclays has no physical branches in the United States but makes up for it with a very competitive annual percentage yield. There are no monthly fees and no minimum balance you must maintain.
Other banks with high interest rates:
- Marcus by Goldman Sachs – 0.50% APY (no minimum balance)
- American Express National Bank – 0.50% APY (no minimum balance)
- Credit Karma Savings – 0.30% APY (no minimum balance)
- My Savings Direct – 0.25% APY (no minimum balance)
- CIBC Bank USA – .52% APY ($1,000 minimum balance)
- Citizens Access – 0.40% APY ($5,000 minimum balance)
- PurePoint – 0.40% APY ($10,000 minimum balance)
How to Open an Online Savings Account
If, after researching and comparing the options for an online savings account, you’re ready to open an account, you’ll need to do a few things.
- Get your documents together. Specifically, you’ll need your Social Security card and your driver’s license or other government-issued photo ID. If you’re not a U.S. citizen, you may also need to scan or submit your immigration documents.
- Double-check your research. It pays to do a final check on all the banks before you select an account. Make sure you verify that they are FDIC insured, what the current APY is, and any other terms like minimum opening deposit. You might also find that one bank has a new financial incentive for opening an account (or another one got rid of theirs).
- Complete your application. In addition to your photo ID and Social Security card, you might also need to provide proof of address, employment, or other information. Note that some banks require you to submit a signature page with a live signature. For instance, instead of scanning the page, you might have to print and mail a form or wait for them to send you one with a stamped return envelope, which can take a few days to process, extending the time it takes to open the account.
- Fund your account. The last step is to make an opening deposit. The easiest way to do this is by transferring a sum of money from a linked account. Once that linked account is confirmed and verified, you’ll be able to make regular and recurring deposits.
What Are the Drawbacks to Online Savings Accounts?
As you might expect, banking entirely online isn’t without some limitations. Here are the most common:
- Getting cash can be difficult. If you regularly deposit and withdraw cash from your bank account, you might find online banking inconvenient. Because there are no physical branches, it’s not possible to walk into the bank and deposit cash. Some online banks belong to ATM networks, but these ATMs may be harder to find than major banks’ ATMs.
- Less personal service. Of course, online banks typically have a customer service hotline or online chat service. But with online banks, you don’t have the option of walking into a branch and sitting down face-to-face with a banker.
- Technology glitches. You might run into an issue with the app or website not working, transfers not going through, or your linked account becoming unlinked for some reason. This can be frustrating, especially if you’re trying to withdraw money or get your account balance.
Choose the Account That Fits Your Needs
The best online account for you is the one that fits your needs. For instance, if you want a high interest rate but access to a large network of ATMs, you might want to use Synchrony over Ally. If you’d prefer a bank with a recognizable name and a host of other products to choose from, Discover is your best choice.
And if you aren’t ready to fully commit to online banking, you may want to consider a hybrid approach. For example, you can use an online bank for most of your savings but still keep an account at a local bank or credit union for when you need access to cash or in-person banking services.
Regardless of your preferred features, there’s an online savings account for you. But remember, finding the best online savings account works best when you commit to making saving money a habit.
When evaluating online savings accounts, we look at multiple factors to help determine where they fall on our rating scale:
- Annual percentage yield (APY)
- Fees and the likelihood that a user will incur them
- Account balance requirements
- Customer service
- Mobile app reviews
For savings accounts, APY and fees play a heavier role in our ratings than other factors because they directly affect your bottom line.