Online Savings Accounts

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Online savings accounts are similar in many ways to offline bank memberships. They offer distinct advantages but also a few disadvantages.

Read this guide if you are trying to decide whether or not to open an online savings account.

Advantages

Higher interest rates. Due to the fact that they do not have to maintain the same kind of brick and mortar stores that most ordinary banks do, online savings accounts tend to offer higher interest rates. The money they save on that maintainence is passed on to you. This makes them a good vehicle for low risk and low reward long term income goals.
Special features. Some online savings accounts have special features. For example, some of them provide you with the ability to save for multiple purposes and to track your money in this way.
Transfer time. An online savings account may be preferrable to people who have low impulse control and people that have demonstrated an inability to prevent splurging. Money in an online savings account may take several days to access thus you can prevent your money from burning a whole in your pocket.

Disadvantages

Transfer time. This was mentioned as an advantage in the previous section, but it can also be a detriment. If you are going to open online savings accounts, you may want to make sure that you have a few bucks in a brick and mortar bank first. It can be painful to wait for that internet transfer to happen if you find yourself in a situation where you need a certain amount of money very quickly.
Customer service and response time. An online savings account company may or may not be able to offer you customer service in the form of e-mail, phone calls or letters. If they do, it's still not likely to be the same kind of service that you can experience in person with a real world teller face to face.

A Warning

Reliability. Most online savings accounts do appear to be trustworthy. However, there is little in the way of a vetting process to create websites and take people's money when compared to the process that a real life bank must go through. Therefore, if you do decide to use online savings accounts, you should always make the decision carefully. Verify that the organization you are entrusting your hard earned cash with is trustworthy. Also make sure that they are ensured (preferably by the FDIC) in case of a bank failure.