How Online Savings Accounts Work (and the Highest Online APYs Out There)

Last Updated: June 03, 2021

How Online Savings Accounts Work (and the Highest Online APYs Out There)

Digital banking might seem like fancy terminology for checking your bank account from your phone, but today, many Americans bank at completely digital financial institutions. In fact, a July 2020 study conducted by Cornerstone Advisors found that 14.2 million Americans bank primarily at a digital bank.

Even if you aren’t looking to switch banks, you can take advantage of one of their most popular offerings — online savings accounts. But what exactly is an online savings account and how does it work? I’ll take you through everything you need to know about online banking.

What is an online savings account?

A savings account is a place where you can safely store and earn interest on your money. This means the bank pays you a small percentage to keep your money deposited at their institution. While annual percentage yields (APYs) range, some banks offering savings accounts that accrue as much as 1% interest.

The funds you deposit within a savings account are also insured up to $250,000 by the federal reserve (look for member FDIC insurance). This means, even if the bank sails or suffers financial losses, your money is still guaranteed.

An online savings account offers all of the above features but in a digital format. Instead of visiting a bank branch and handing the teller cash or checks to deposit, you deposit funds digitally, directly from checking accounts, via direct deposit, money transfers, and other digital means.

Traditional banks and online-only institutions can both offer online savings account options. For instance, if you do not have a CitiBank nearby or even in your state, you can still open an online savings account with them.

Types of online savings accounts

Just like traditional savings accounts, there are many different types of online savings accounts to consider. These include traditional savings accounts, money market accounts, and certificates of deposit.

Traditional Savings Accounts

These savings accounts have a simple premise: earn interest on deposited money while allowing you to access your funds whenever you need them. Most Americans will have a traditional savings account while the other two savings options are a little less common.

Money Market Accounts

Money market accounts can be thought of as the next step up from a traditional online savings account. In exchange for depositing and maintaining a higher account balance in these accounts, you’ll earn more interest on your money. Some money market accounts even offer perks similar to checking accounts, such as the ability to write checks and withdraw funds at ATMs.

Certificates of Deposit

A certificate of deposit or CD is the last type of online savings account. This account requires you to deposit your money and not withdraw it for an agreed-upon period. In return, you receive a higher interest rate than you would if you had immediate access to your funds (like with traditional and money market accounts).

How to open an online savings account

You can open a mobile banking savings account from your computer, tablet, or smartphone by visiting the website of the bank you want to work with. You’ll need to provide some personal information like your driver’s license number, address, and social security number.

You will need to make an opening deposit, which can be done through a wire transfer or by automatic transfers through connected banks. For example, transfer funds through a connected checking account, which some banks require you to have to open accounts, so be sure to do some research before choosing a financial institution.

10 best high-yield online savings accounts

Now that you understand what an online savings account is, how it works, and the different options available, I’m going to run you through 5 of the top online savings accounts I recommend.

Smarty Pig by Sallie Mae - 1.05% APY

You might be familiar with Sallie Mae if you went to college and had student loans funded by this financial institution. In addition to loans, Sallie Mae now offers a competitive high-yield savings account called Smarty Pig.

This account is ideal if you’re looking to save money and earn interest. It is an online-only savings account, which means you’ll need another bank account (checking or savings) to transfer money from.

What I love most about this account is its high APY. Right now, account holders can earn up to 1.05% APY with this savings account, which is the highest rate out there. Rates do decrease as you deposit more money:

APY	Balance
1.05%	$0.01 - $2,500
0.95%	$2,500.01 - $10,000
0.75%	$10,000.01 - $50,000
0.65%	$50,000.01 - $250,000

Despite the dip in APY as you carry a higher daily balance, Smarty Pig is still a high-interest savings account in the best high yield savings accounts.

You can sign up for a Smarty Pig account at SmartyPig.com.

Citibank Accelerate Savings Account - 0.70% APY

If you’re searching for a high yield savings account that offers in-branch and online savings account services, the Citibank Accelerate Savings Account might be exactly what you need. This national bank offers a high APY — up to 0.70% — for customers, depending on your zip code.

What I love about this high yield savings account is that there’s no limit on how much you can earn and no tiered APYs like with Smarty Pig. You also have ATM access to your savings account. However, depending on where you live, you may not qualify for the 0.70% rate, so this option isn’t for anyone.

Citibank also offers CDs, though rates are on the low side (approximately 0.25% APY; exact rates vary depending on deposit amount and CD terms).

If you’re not ready to commit to a fully online bank, but want to give digital banking a shot, this savings account can earn you one of the highest interest rates currently available. Just make sure you live near a Citibank if you hope to take advantage of in-branch services.

You can find out if you’re eligible for the Citibank Accelerate Savings Account at Citibank.

Read a full review on Citibank.

Vio Bank - 0.76% APY

With a high APY standard high-yield savings account, Vio Bank is an excellent option for anyone looking to accrue more interest on their deposits. While Vio’s APY is lower than Smarty Pig, this APY applies for all balances, which can be a smart choice if you plan on depositing and maintaining a balance well over $10,000.

Like Smarty Pig, Vio is a virtual-only bank, which means you’ll need to transfer money from an existing account. They do not offer ATM access and do require a minimum deposit of $100 to open an account.

Vio also is currently offering high-yield CDs at competitive rates up to 0.70% APY.

You can apply for a high-yield savings account with Vio at VioBank.

Ally Bank - 0.60% APY

Ally is another top online-only bank with an online savings account. Ally is well-known for its steady and competitive savings account interest rates and is almost always on par or above its competitors’ rates.

Right now, Ally’s savings account offers a 0.60% APY on all balance tiers with no monthly maintenance fees. If you’re interested in completely making the switch to an online bank, Ally might be a great choice, since they also offer a free checking account. I love that both of these Ally accounts are free with no minimum requirements.

Although Ally’s savings account does not allow ATM access, if you use your free checking account, you’ll receive a debit card and be able to quickly move money from one account to the other via their mobile app or website.

Ally also has a money market account with a current 0.50% APY on all balance tiers.

You can apply for a savings account with Ally at Ally.com.

Read a full review on Ally Bank.

Axos Bank - 0.61% APY

Axos Bank currently offers a variety of savings accounts, but its most beneficial traditional savings account is its high-yield personal savings account. Right now, Axos is offering 0.61% APY on all balance tiers, with no minimum balance requirements. Axos requires a $250 minimum deposit to open this account.

One feature that sets Axos apart from the pack is that this online-only lender issues ATM cards for its savings accounts (but you will need to request one). This is helpful since you won’t be able to visit a physical Axos location. Axos also has a large network of no-fee ATMs across the country.

Axos also offers money market accounts with up to 0.60% APY and CDs at 0.40% APY.

You can open an Axos savings account at AxosBank.com.

Discover Online Savings Account – 0.60% APY

Known for its credit cards, Discover offers FDIC-insured online banking with 5x the interest rates over the national average for savings.

One of the best things about a Discover savings account is interest is compounded daily rather than monthly. Plus, it does not charge a monthly fee or ISF fee and doesn't have a minimum initial deposit requirement.

You can open a Discover savings account at Discover.com.

Capital One 360 – 0.50% APY

Although Capital One touts itself for offering 5x the average APY, its rate is lower than Discover. Still, it's a high-yield, fee-free savings account that can help you reach your savings goals faster.

No matter how much you have in your account each statement cycle, the account earns 0.50%.

The accounts do not have debit cards, ATM cards, or check-writing capabilities and are insured at up to $100,000.

You can open a Capital One savings account at CapitalOne.com.

Read a full review on Capital One Bank.

American Express National Bank – 0.60% APY

Another bank best associated with credit cards offers deposit accounts, too. Depositors are insured up to $250,000 through deposit insurance and are not required to carry a minimum balance. AMEX won't charge you monthly fees, as long as you stay within its nine withdrawals or transfers limit each month. That's higher than the Federal Reserve Board recommendation of six per month. There is no limit to the number of deposits.

AMEX also provides CDs at up to 0.55% APY that can be locked in for 6 months to 5 years.

You can open an American Express savings account at AmericanExpress.com.

Synchrony High Yield Savings – 0.65%

You won't need a minimum balance for Synchrony's online savings account, as well. Offering a mobile app for your banking, you can transfer money between your Synchrony account and other banks as well as withdraw money using an optional ATM card – there are no ATM fees and if you are charged a fee at another bank you can be refined up to $5 per statement cycle.

Synchrony offers money market accounts at 0.50% with no minimum balance and CDs at 0.60% with a minimum opening deposit of $2,000.

You can open a Synchrony savings account at Synchrony.com.

Chime High Yield Savings – 1.00%

You may be hearing the name Chime more and more as this online bank is offering some of the highest APYs available. There are no minimum balance requirements, no maximum balance limits on interest earned, and no fees. And yes, it is also FDIC insured.

One of its coolest features is the Round Up Transfer automatic savings, but you need to also have a Chime Spending Account. With this, every time you make a purchase, the dollar is rounded up and the change is deposited into your savings account.

You can open a Chime savings account at Chime.com.

Read our full review on Chime.

Here's a side-by-side comparison of the banks:

Bank	APY	Minimum
Smarty Pig	1.05%	$0
Citibank Accelerate	0.70%	$0
Vio	0.76%	$100
Ally	0.60%	$0
Axos	0.61%	$250
Discover	0.60%	$0
Capital One 360	0.50%	$0
American Express	0.60%	$0
Sychnrony	0.65%	$0
Chime	1.00%	$0

Costs and fees of online savings accounts

Some banks will charge you fees for maintaining and using your savings account. The good news about opening an account with an online bank is that they typically do not charge the same fees as brick-and-mortar accounts.

Many online savings accounts (like Ally, SmartyPig, Axos, and Vio) do not have monthly fees, while traditional banks offering online savings accounts (like CitiBank) often do, but have ways of waiving these fees.

Other fees to look out for include ATM fees and overdraft fees.

Pros and cons of online savings accounts

Opening an online savings account has its advantages and drawbacks. I’ll take you through some of the important points to consider.

Pros

Higher interest rates and lower fees. One major perk to switching to an online savings account is taking advantage of higher interest rates and lower account fees. Many online savings accounts have no monthly fees and no hidden fees to worry about and offer a high APY on all balance tiers.
Top-of-the-line digital tools. Since online banks are in the digital business, their online tools and mobile apps tend to be more robust, intuitive, and faster than traditional banks. You can manage all of the features of your savings account from anywhere, round the clock.
Free checking services. One of the main benefits I love about online banks is that many also offer free checking services (with debit card access) that allow you to fully switch your banking accounts to a digital platform. Since free checking accounts are hard to come by when banking with a traditional brick-and-mortar bank, this is a real advantage digital banks have over the competition.
No need to switch banks. Are you nervous about making the transition from your current bank to an online institution? Opening an online savings account is a great first step if you choose an online bank with no fees or deposit requirements. This allows you to test out your new account with no commitment to stay if you decide you prefer your current bank.

Cons

No physical branch locations. Since many online savings accounts are offered by online banks, you won’t be able to sign up for an account or get answers to questions by visiting a physical location. Instead, you’ll call a customer service line, email, or reach out via chat.
No ATM service. Although some online banks like Axos do offer ATM service for traditional and high-yield savings accounts, most online banks do not. Some, like Ally, offer ATM services for checking accounts that you can then link to your savings account, to move money easily for your phone or computer.
Additional services may be limited. If you love using one financial institution for all of your banking needs, it’s important to know that not all online banks can offer the same suite of services. While Ally and Axos both provide checking, savings, money market savings, auto loans, mortgages, personal loans, and investing services, this is not the norm for all online banks. Vio Bank and Chime, two popular online banks, only offer checking and savings accounts, while Smarty Pig is only an all-in-one savings account.

The bottom line

Opening an online savings account can help you collect more interest on your money. If you’re looking for a more traditional savings account, opt for an online high-yield account if you want a high interest rate. If you want ATM access to your account, an online money market account might be the right choice. Lastly, if you don’t need to touch your money for some time, an online CD may earn you the most interest.

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