4 Things to Consider Before You Open an Online Savings Account

By Debbie Dragon on 13 April 2011 9 comments
Photo: peepo

Opening an online savings account is a fairly simple process that offers a number of benefits, from a higher interest rate to convenient access options. But before you switch banks or open an account with the first online bank you find, there are a few things you should consider. (See also: Think Twice Before Ditching Your Current Bank)

1. Interest Rates

Online savings accounts often have higher interest rates than their brick-and-mortar counterparts. This is because they have lower operating expenses and can pass on the savings to their account holders.

When a local bank advertises high-interest savings accounts, customers usually have to meet certain criteria for eligibility — such as providing a larger initial deposit, maintaining a minimum balance, keeping additional bank accounts with the bank, or limiting transactions in or out of the high-yield savings account.

When considering online savings accounts, make sure to compare interest rates and choose a bank offering the highest rate with the lowest requirements or fees.

2. Policies for Deposits and Withdrawals

If you have never used an online bank before, you may be wondering how you make deposits or withdrawals. While each internet bank may have its own policies, the basic functions are similar.


You can mail checks made out to you with a deposit slip, although this can take a while to process. You have the option of setting up direct deposit from your employer to have all or part of each paycheck deposited into your online savings account. Most online banks also allow you to “link” your account to other bank accounts you maintain, such as a checking account with your local bank. If the bank you are considering allows linked accounts, you can set up money transfers from one account to the other. Some online banks contract with brick-and-mortar banks and can accept deposits at certain ATMs.


Online savings accounts will provide you with an ATM card to access money. You can visit an ATM and withdraw cash, or you can use the ATM card like a credit card and the money will be deducted from your savings account. If you link other bank accounts with your online savings account, you can transfer money out of your savings and into the bank account of your choice.

As you compare various online banks in search of an online savings account, make sure you take a look at how to deposit and access your money. If you want to transfer money between accounts, verify that the bank you are considering allows linking. If you're perfectly happy to perform all deposits and withdrawals via ATM cards, make sure they allow that option.

3. FDIC Insurance

Before opening an online savings account, you want to make sure the bank you're considering is legitimate and FDIC insured. Check the bank's website for the “About Us” page and see where the bank has its main office or headquarters, and look for information about FDIC insurance coverage. You should see the FDIC logo or the phrases “FDIC Insured” or “Member FDIC” right on the bank's website.

Finally, to verify that the bank is legitimate, you can check the FDIC's Bank Find database for details on the bank you are considering. If the bank is in fact insured, you'll see the insurance certificate number and can open an account with confidence. If there are banks that claim they are members of the FDIC but do not appear in the Bank Find database, contact the FDIC immediately so the bank can be investigated for potential fraud.

4. ATM Access and Fees

Since the primary method of instantly accessing money in an online savings account is through ATMs, you will want to take a look at which ATMs you're allowed to use and how much the bank charges for each transaction you make. Some online banks even give you rebates when you use ATMs that charge fees, which can really add up to big savings if you use the machines frequently.

Considering each of these aspects when opening an online savings account will ensure you get an account best suited to your needs. Verifying FDIC insurance will protect you against bank failures, and comparing interest rates as well as various bank fees will help you lower your cost of banking and maximize your savings.

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Guest's picture

I would keep a local bank account thats free on top of having the high interest online account. This gives you the option to automatically route funds from your online account and pick it up locally if its going to be more than the ATM daily max.

Guest's picture

I avoid ever using an ATM card with my savings account. I don't want to pay the fees and the bank won't refund the fees. For me, all of the movement of cash is done by transfers to/from my local checking account.

Additionally, make sure that the online savings account isn't just offering a "teaser" interest rate for the first 3 or 6 months. I've seen quite a few try this tactic in the past.

Guest's picture

The issue of beneficiaries haven't been discussed too much on internet articles about online banks, but this was actually a big reason why I left ING Direct and went to Ally bank. Last year, I had money in ING Direct and was looking to update my beneficiaries. To my surprise, there actually was no way to put beneficiaries on ING accounts. I know there's probably a way to pass the money on down to whoever you want through all the estate/death planning, but beneficiaries are the simplest way to designate, and it's a pretty powerful estate transfer method.

Anyway, just thought this might be something that someone might want to consider as well.

Guest's picture

I would say the best bet is to open an account with a credit union, and some credit unions will allow you to open an account online. Regardless, you can do all your banking through direct deposit, online bill, ATM deposits/withdrawls, and all of it can be done fee free quite conveniently. Not to mention that their savings rates are typically better than a bank...I would say 99% of the time!

Guest's picture

Before opening the online account we always need to check all the terms and conditions.
Recheck your accounts after online transactions. Do not access your online bank account on untrusted computer if accessed then immediately change transaction password.

Guest's picture

You should look at several options before you determine which bank is the right one for you. If you travel a lot with your job, or just for fun, you may be better off going with a bigger banks that is located all over the United States. This can save you money in ATM fees. If you do not plan on traveling much you may find the products and customer service at a smaller bank a better fit. If you qualify for a credit union, you should take advantage of it. Credit unions offer higher interest rates on savings accounts and lower interest rates on loans. Generally the fees are much lower at credit unions as well.

Guest's picture

To me the thing that matters most is the customer service. I really don't want to open an account with a bank that pays me the best interest rate but makes me regret my decision, of opening an account with it, by harassing its customers for petty things.

Guest's picture

You can look online at the minimum balance requirements and fee schedules for the different accounts offered through several banks. You need to determine if you can afford a minimum balance requirement and decide how much that is. There are several advantages for being able to maintain a higher minimum balance, you may be able to avoid monthly banking fees, earn higher interest rates and avoid fees for money orders and travelers’ checks. However, if you choose an amount that is too high, you will be charged fees for being under the limit.

Guest's picture

The advantage of online banking is higher interest rates. You still need to have a local bank linked to your account to access funds and in some cases deposit checks. Most online banks allow electronic check deposits by scanning the check, but I found out that they have limits to the dollar amount. Ally is pretty reasonable allowing up to $10K. Capital One 360 (ING) on the other hand only allows $3000. I can understand increasing the check holding period, etc., but to have a policy that limits a check amount is ridiculous and is another reason that online banks are NOT full service.