The Pros and Cons of Online Savings Accounts

This post was written by PT, who blogs about things like savings accounts and the best cash-back credit cards on his blog, PT Money.

I’m a big fan of using online savings accounts to help you save for emergencies or any short-term needs you might have. On the surface, they appear to be just like a normal savings account, thus, I believe, people haven’t felt compelled to make the move to save their money there. And with the recent collapse in savings interest rates, they appear to have lost their luster. However, I think moving your savings online still has it’s merits. Here’s my list of pros and cons of online savings:

The Cons of Online Savings

Change – Simply put, unless you’re brand-new to the banking world, opening up a new bank account isn’t something you think to do. And it’s not necessarily on the top of any one’s bucket list, either. It only takes around 15 minutes to open an account and a wait of 2 or 3 days, but that’s usually enough of a barrier for people to say, “Eh, I’ll skip that and go watch some more videos on YouTube.” And if you already have a banking relationship, you likely have auto drafts and direct deposits to contend with before switching to an online bank.

Limitations on Depositing Money – Since online-only banks don’t have a physical branch, making a deposit leaves you scratching your head. Do I mail it in? Do I deposit at another bank and then transfer the funds in? These banks are doing a lot to combat this problem, but it still exists.

Slow Transfer Time – It takes anywhere from 3 to 5 days to move money from your online bank to another institution. For some people, this is just too long of a wait for what is supposed to be liquid savings.

Low Returns – Let’s face it, the interest rates on online savings account ain’t what they used to be. The rates barely keep up with inflation these days. If your goal is a higher return than 2%, then look somewhere else.

The Pros of Online Savings

No Minimums or Fees – 99% of these online savings accounts don’t have any type of restriction or fee that would negate the benefits of saving. Plus, there are no direct deposit or spending requirements associated with the accounts. Just a simple, fee-free account.

FDIC Insured – These accounts have FDIC insurance just like any other bank account. Your money is safe from a potential bank failure up to $250,000.

Slow Transfer Time – I contend that the slow transfer time of these banks is also a pro for those looking to save more. The time lag creates a natural barrier between you and your savings. You usually won’t spend what you can’t get to quickly.

High Returns – Compared to traditional savings accounts, the mere 2% you get with an online bank is still 4 times better than the average brick-and-mortar savings account.

I think the future of online savings is strong, as many of these cons will disappear with the advances of technology. What’s your opinion?

9 comments to The Pros and Cons of Online Savings Accounts

  • I have 40% of all my savings at, which is online. I do b/c they offer the highest CD rates around i.e. 3.55% for a 5yr CD, and 3.85% for a 7yr CD.

    I love USAA, and also love the idea I have locked this money away earning 4% interest (deposited earlier this year), and won’t have temptation to retrieve it.

  • Jim

    the biggest down side to any online or banking savings accounts is the lack of return.

    im not going to pull my money out but at some point they are the beneficiary of being able to lend money and i get pennies on the dollar…

  • I must admit the lag on my online accounts is helping me be far more considerate to moving cash around, great point there!

  • PT

    Great point, Jessie. I use that feature too. Love it. Makes it a snap when combined with the new goals feature of

  • Great list. – Change!? Hardly anybody likes change, even though constant change is exactly what is necessary for progress. My neighborhood bank has also changed and offers such modern amenities as an ATM machine (which only became popular in the late 1980s) and online banking. How is the online banking at my neighborhood bank different from internet banking at an internet bank? It is different only in one way. I can refuse to use the ATM machine or online banking at my neighborhood bank and still do banking business.

  • I hopeonline banks have a great future in front of them, because I am a HUGE fan of ING and appreciate the benefits of Smarty Pig as well. I’d hate to be relegated back to brick and mortar banks only now…

  • I agree with your pros/cons of online savings accounts. I’m a big fan – and feel that the pro’s outweigh the cons.

    Further, I love that (with ING at least) I can have as many savings accounts as I like different ‘funds’ or ‘pots’ for everything I’m saving for.

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