The Rise of Online Savings Accounts in One Chart
Point of Interest
Online savings accounts provide savers with unique savings technology, higher interest rates, and a simplified process for growing their savings. Some of the best online savings accounts offer APYs as high as 1.70%.
Over the past few decades, many industries across the globe have transitioned online, and banking is no exception. Online savings accounts offer consumers the ability to get better interest rates and earn more money, while still enjoying the protections they’re used to like FDIC insurance.
Since late 2015, interest in online savings accounts has steadily been on the rise. Google search traffic in the U.S. for “online savings accounts” has steadily climbed, reaching and holding its peak in late 2019 until now. This signals that Americans are taking notice of the interest rate advantages offered through online savings accounts.
Why earn low rates through a traditional brick-and-mortar bank when you can make your money work harder for you online?
What is an online savings account?
Online savings accounts are the same as traditional savings accounts with two major differences — they’re held at an online bank and typically pay higher interest rates. Much like traditional savings accounts, anyone over the age of 18 with money to save can open an account. Different accounts with different banks will offer you interest payments on your money in return for leaving the funds there for the bank to use.
Additionally, online savings accounts often have unique technologies you can employ to shape how you grow your savings. Jonathan Yagel, Vice President of Peak Money, a digital financial tracking app, says, “Online savings accounts — because consumers are increasingly seeking integrated support, rather than just a place to store their money. For example, the Peak Money app provides a competitive annual return… but also provides integrated tools for setting and tracking goals. While brick-and-mortar banks sometimes offer tools, they tend to feel bolted on after the fact… because they are. Modern online savings accounts have the advantage of being designed and built with the digitally savvy, mobile-first consumer in mind.”
Online savings accounts have grown in popularity, but why?
Zion Market Research estimates that the digital banking industry was valued at $6.62 billion in 2018. Impressive already, that number is expected to grow to $8.64 billion by 2025. It’s clear that people are adopting a new form of banking. While it may be hard to pinpoint the exact reason for the growth, it’s hard to deny the higher interest rates available on savings accounts are not helping. When you can earn more money on your savings with the same minimal risk (insured through the FDIC), it’s hard to have a valid reason why not to take advantage.
Are online savings accounts safe to use?
Absolutely. Just because online banks don’t have a retail storefront does not mean these banks escape the government regulations and restrictions placed on banks in the country. As long as you’re choosing a reputable online bank that is FDIC-insured, you’ll enjoy the same safety protections you’d get at a traditional brick and mortar bank. It may feel a bit strange at first using a 100% digital platform, but you’ll quickly realize that you and your money are just as protected.
The perks of using an online savings account
1. Easy to set up and fund – Setting up an online savings account only takes a few minutes. You won’t need to leave your house or visit anywhere to get started. Once you have your account open, getting money into an online savings account is easy. Many digital banks offer account funding through bank transfers, remote check deposit, wire transfers and checks (digital and mail-in).
2. Higher interest rates – The main purpose of a savings account is to store money away for future expenses while earning as much of a return as possible. With most traditional brick and mortar banks, interest rates are in the low less than 1% range. With online banks, though, savings account APYs are available from 1% up to sometimes as high as 2%. Depending on the amount you have in your account, and how long you leave it there, this can spell significant returns on your savings.
3. Enhanced savings tools – Online banks have unique ways to help customers drive savings and meet financial goals. For example, Ally offers buckets and boosts to help customers build their savings. Buckets allow you to have multiple different “accounts” within one single account. The tool helps you to visualize saving for multiple things at once without the need to open several accounts.
Ally’s Boosts utilize artificial intelligence to determine optimal savings amounts. The tool connects to your bank account, monitors spending habits, and looks at upcoming bills. Based on this information, it determines the amount you can afford to contribute to savings and does it for you. Instead of spending hours determining how much to save, you can let technology work to do it for you.
4. Simplified account management – Instead of having to go into a branch or call the bank to monitor or make changes to your savings account, everything can be done through dedicated apps or web portals. This brings simplicity, transparency, and a streamlined experience unavailable without the aid of technology.