Best Online Savings Accounts for January 2020

A traditional bank savings account earns an annual percentage yield (APY) of 0.09% on average. Our top-rated online savings accounts below dish out more than 22x the returns of traditional bank savings accounts, and are insured by the FDIC. Simply put, you could be missing out on much larger guaranteed returns by letting your money languish in a traditional bank account with a low APY. Check out our recently-released list of 2020 picks to see which is a fit for you.

To be a top pick, an online savings account should deliver the following:

• High APY -- Yield isn't everything, but all other factors being equal, you obviously want to get the highest possible return on your savings.
• Low fees -- Without having to operate a brick-and-mortar location, online banks are able to pass on that savings to consumers in the form of higher APYs and lower fees.
• Flexible deposits and withdrawals -- An online bank should still provide easy access to make deposits and withdrawals. Many online banks have large ATM networks, and others reimburse fees from non-bank ATMs. Some also have ways to easily deposit cash into their accounts.

An online savings account is a savings account offered by a bank that primarily does business over the internet. Some online banks have at least one or two physical branch locations but online savings accounts operate primarily without brick and mortar locations. Online savings accounts come in various types:

• Regular savings accounts typically have low minimum balances and few restrictions on use, but pay lower rates of interest.
• High-interest savings accounts pay more attractive interest rates, but often require you to keep a higher minimum amount of money in the account or put limitations on how you use the money.
• Money market accounts combine some elements of checking and savings accounts. They pay attractive interest rates but also offer check-writing features that let you make a limited number of payments by check each month.
• Certificates of deposit or CDs require you to keep your money in the account for a set period of time. If you withdraw money early, you'll pay a penalty. The longer the time period for the CD, the greater the interest rate usually is.

Not all online banks offer every type of online savings account. However, you'll almost always find a regular savings account and CD options, and it's also common to see at least one higher-rate option available.

While it has taken time for many bank customers to get used to the differences between online banks and financial institutions that have brick-and-mortar bank locations, online banks have grown dramatically in popularity over the years.

Early on, many bank customers were concerned about the potential for internet fraud, fearing that online banks weren't even legitimate institutions. To attract deposits, online banks responded by offering interest rates that brick-and-mortar banks couldn't match. They were able to do this because online banks don't have to pay the maintenance and upkeep associated with the physical real estate dedicated to bank branch locations.

Now, the banking world has turned upside down. Many people prefer the convenience of banking online, so much so that even traditional brick-and-mortar banks have had to create online systems to give their customers the same services that online banks have always provided.

Here are some of the pros and cons of online banks vs. brick-and-mortar banks, on a number of topics:

• Interest rates -- The best online banks still have a dramatic advantage in the rates they offer, especially on basic savings accounts. Many brick-and-mortar banks pay next to nothing in interest, relying on other features to bring customers in.
  
• Hours of operation -- In terms of sheer availability, online banks are always available to conduct regular business. You don't have to worry about when a branch location might be closed or what transactions your brick-and-mortar bank will let you do through an ATM.
  
• ATM networks -- Few online banks have the extensive networks of proprietary ATMs that the biggest brick-and-mortar banks have. However, many online banks offer rebates of ATM fees that you might have to pay to use an ATM in another bank's network.
  
• Customer service -- Online banks typically have call centers that offer service on an extended schedule, with a few giving their customers 24/7 access to professionals. Online chat customer service is also sometimes available. However, no online bank can match the in-person relationships that brick-and-mortar banks rely on as their main competitive advantage against their internet-focused rivals.
  
• Quick account access -- Most transactions involving online banks require use of electronic transfers, which typically take a couple of days to complete. Wire transfers are available for more time-critical needs, but you'll often pay an extra fee. When you need quick access to your money that goes beyond what an ATM can provide, brick-and-mortar banks still give you the chance to go to a branch and immediately make as large a withdrawal as you want in whatever form best meets your needs.

In the end, whether you prefer online savings accounts to brick-and-mortar accounts depends on what you want from your banking relationship. In the vast majority of cases, online banks can let you do just about anything a brick-and-mortar bank would -- and you'll earn better interest along the way.

One must-have feature that any good savings account has to have is deposit insurance from the Federal Deposit Insurance Corporation, or FDIC. Covered deposits are protected up to $250,000 against any problem that your bank might have, up to and including the complete failure of the entire banking institution.

The good news is that most online banks, including all the ones that offer the best online savings accounts, are covered by the FDIC. But if you have a lot of money to deposit, you have to be a bit careful. All of the accounts you have in the same name at the same bank are added together to calculate the $250,000 limit. So if you have two savings accounts -- each of which has $150,000 -- then the total of $300,000 leaves $50,000 at risk above the $250,000 limit.

However, you can get extra coverage if the names on the accounts are different. For instance, in the example above, if one of those accounts was an individual account while the other was a joint account with your spouse, then each would get separate $250,000 protection. That would protect the full $300,000 total amount.

The best online savings accounts have several attractive features. You won't necessarily need all of them, but it's good to know that when you do, you won't have to switch banks to get them. Here's a short guide, in rough order of importance.

Look for FDIC insurance

The most important feature of an online bank is that it be FDIC-insured. Going without deposit insurance is a risk you don't want to take, especially with an internet-based financial institution.

Avoid unnecessary fees

Monthly maintenance fees, account inactivity fees, statement fees, and other miscellaneous charges that you're used to seeing with brick-and-mortar banks largely have no place in the online banking world. Just about the only exception is an overdraft fee, but that's pretty rare with savings accounts.

Look for accounts with flexible deposits and withdrawals

It should be easy to move money into and out of your online savings account. Electronic fund transfers are an inexpensive way to make deposits and withdrawals, especially if you have an existing relationship with a brick-and-mortar bank. Direct deposit of paychecks should also be easy to set up, and many online banks offer bill-pay services. You might need to open a related online checking account to make money transfers as convenient as possible, but that's usually a simple process as well.

Online banks should also have ways to get money out of ATMs cheaply, either through a partnership with a major ATM network or by reimbursing fees charged by out-of-network cash machines.

Find a high interest rate

The best online savings accounts have rates that are close to the highest available. You don't have to pick the very best rate, because often, you'll find that changes in promotions can shift the order among the top-ranking online banks. As long as you're within striking distance of the best rate, you'll likely do fine.

Find a bonus

You can sometimes get bonus deals by opening an online savings account. Some accounts offer extra cash if you deposit a certain amount within a month or two of opening the account and then keep it there for a set minimum period of time. Look closely at the fine print, though, because some deals will require you to make certain transactions that you might not otherwise need to do, such as making debit-card purchases or establishing a direct deposit into the account.

Because online banks don't have branches for you to visit, it's vital to understand how to make deposits and withdrawals. Fortunately, most of the best online banks give you several ways to get money in and out of their online savings accounts.

For deposits, the following methods are often available:

• Electronic transfers of funds from an existing bank account, or for paychecks, through a direct deposit relationship with your employer.
  
• Wire transfers.
  
• Deposits through ATMs.
  
• Online submission of check images through a desktop or laptop computer or a mobile device like a tablet or smartphone.
  
• Sending checks to a specified bank mailing address by mail or overnight delivery service.
  

To get access to your money, online savings accounts typically give you similar options:

• Electronic fund transfers to another bank account.
  
• Wire transfers.
  
• Withdrawals through ATMs.
  
• Debit-card purchases linked to your online account.
  
• Some types of savings accounts, such as money market accounts, allow you to make withdrawals by check.
  
• Requesting a paper check be sent to you by mail.

There are a couple extra things to consider. First, the Federal Reserve limits withdrawals from savings and money market accounts, including those at online banks, to six per account cycle. Withdrawals above that limit typically incur fees and can lead to the closure of your account. Second, online banks are vigilant about hacking and fraud, and many require two-factor authentication and other security measures when you try to withdraw funds.

There's no limit to the amount you can earn in a savings account. The more you save and the higher the interest rate, the greater your earnings will be. For instance, if you're able to set aside just $100 each month in an online savings account, here's how much your money will grow over time.

Data source: Author's calculations.

Early on, the difference between a 2% rate and a 4% rate isn’t all that significant. But by the time 10 years has gone by, getting a better rate has earned you almost $1,500 more in interest, and that difference grows to more than $7,000 in earnings over a 20-year period.

More important than earning interest is the ability to have funds available to you in an emergency. Even if you only earn 2% during a period of low rates, that's still a lot better than the 10% to 20% or more in interest you'd pay if you had to charge an unexpected expense to a credit card and pay it off over time. The peace of mind that an online savings account can give you has value above and beyond the interest you'll receive.

What it all comes down to is whether an online savings account will help you meet your financial needs. An online savings account is ideal for you if:

• You’re seeking some of the highest savings rates offered.
  
• You like being able to handle your finances via the internet.
  
• You're comfortable with using electronic fund transfers as your most frequent way of making deposits and withdrawals.
  
• You're okay with customer support via email, phone, or online chat and don't need much personal hand-holding.
  

On the other hand, an online savings account probably isn't right for you if:

• You need a lot of one-on-one personal attention.
  
• You need near-instantaneous access to large amounts of cash beyond what an ATM can provide.
  
• You don't have reliable internet access via computer or mobile device.
  
• You have a lot of special banking needs beyond simple deposits and withdrawals.