Four Types of People Who Should Apply for Online Savings Accounts

By Kenneth Moore | Jun 18, 2010

This is a guest article from MoneyNing, a personal finance blog that arms you with the knowledge necessary for a prosperous future.

Online savings accounts are a great money saving tool, but since they may not be for everyone it is important to know who should apply for one. With their higher interest rates and generally lower costs, online savings accounts can really help you to maximize the value of your savings. However, these accounts may not be an ideal choice for people in certain situations. There are a number of different factors to consider when determining who should apply, so let’s take a look.

Big Savers

If you have a large amount of cash, an online account might be for you. Many of the online savings accounts with the largest interest rates have higher minimum balances. This means you will need more money to open up one of these higher interest rate accounts. Often, the accounts also require a minimum daily balance. That means you have to have a set amount of money in the online account each day. If your account dips below the minimum, you risk being charged a fee. Therefore, people who have the most money available to put into a savings account tend to get a better deal when it comes to choosing an online bank.

People who invest more in an online savings account also stand to earn more than people who have less to invest, simply due to the function of interest. If you have a larger amount of money that is earning interest, by definition your interest earnings will be larger. If you have a very small savings account, it might not be worth the time and hassle for you to open an online account for the slightly higher interest rates, since you won’t have enough money invested to truly make a substantial difference in your interest earnings.

People Who Don’t Need Immediate Access to Their Money

If you use your savings account as a second checking account or as a fast source of easy cash, an online savings account may not be for you. Online savings accounts are, by definition, online. This means there is no bank for you to go into to withdraw money. Because the accounts are savings accounts, there is often no account-linked ATM or debit card associated with them.

All of this adds up to the fact that getting your money out of an online savings account can take several days to a week, depending on the bank and their options for withdrawals. If you need fast and easy access to your savings, this could pose a problem for you.

If, however, you simply put your money in savings and tend to leave it alone, online savings accounts may be right for you. Since you won’t be regularly drawing from the account, the fact that it takes a few days to get the money in your hands will not be a detriment.

This principle of delayed access to your money can actually come in handy for people who want to save but have difficulty finding the self-control to do so. Many people have every intention of leaving their money in their savings account for a rainy day. However, those good intentions are for naught when they see an impulse buy that catches their fancy, and suddenly their emergency fund becomes a source of cash that is just perfect for buying that new emergency flat screen TV, new pair of shoes, or other “must-have” emergency item that isn’t a true emergency. If the money is safe in an online savings account, the incentive to make an impulse buy may be less strong. You’ll know that you need to go through the process of making an online withdrawal and waiting for the money to come, and this waiting period can provide you with a great opportunity to think about whether you really want to make that purchase or not.

People Saving Towards Many Specific Goals

Some online savings banks will allow you to open multiple linked savings accounts, or to earmark some of your savings for different purchases. Many online banks make this process of saving for a specific goal easier then traditional brick and mortar banks do, since everything is electronic anyway.

It can be very motivating to see different savings accounts for each of your goals. It can also help you stay on track. If some of your money is specifically earmarked in an account to save for a house, while other money is in a vacation fund or a new car fund, you can keep clearer track of your goals and your progress towards them. This can allow you to make wiser money management decisions and can deter frivolous purchases and/or borrowing form one account to pad another.

People Who Prefer an Online Interface

Not everyone is comfortable doing everything online. Some customers truly prefer the human interaction that comes with going to a bank, opening an account and speaking to a teller or seeing a familiar face. If you want to be able to talk to your banker, have your options explained in person, and have someone present to deal with your concerns, an online bank might not be right for you.

If, on the other hand, you like the convenience of managing your money over the Internet, then you are a person who should apply for online savings accounts. A web-only interface means that the website tends to be simple to use, easy to navigate and intuitive. Online savings accounts give you 24/7 access to account information and you can watch your savings grow from the comfort of your own home computer. Many online banks offer customer service online in the form of email or chat. This can be a wonderful benefit for people who prefer to conduct all or most of their business online.

In general, online savings accounts are right for many people. Opening an online savings account can allow you to save money and do so conveniently at a higher interest rate. Therefore, in the majority of cases, the answer to the question of who should apply for online savings accounts is that you should.

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