If you are in the process of choosing a digital savings account and you don’t know exactly how to start the search, this post is for you. In this article, you will learn the basics of savings accounts, what they are good for, the pros and cons of digital savings accounts online, and if this type of account fits your financial needs.
Savings accounts are a great option for depositors that are looking for flexibility and stability for their money. This type of account can be an excellent place to keep your money for unexpected expenses, specific goals, or both. Clients use savings accounts for a home down payment, a car, a vacation, or a wedding, for example. This type of account is also a great option to place savings for an emergency fund or other short-to-medium-term expenses.
Most, if not all, banks offer some sort of savings account, and most of them are very similar. It works like this: you deposit your money at the account, banks lend this money and later share the interest rate with you. Traditional savings accounts are opened in physical branches. But with technological advancements and changes in consumer behavior, a new modality of savings accounts surged to better the customer experience: the digital savings account.
Digital savings accounts, also known as online savings accounts, have been increasing in popularity for the past 15 years. An online savings account is just like any other savings account; the only obvious difference is that it only exists online. If you expect practicality and a high return rate, you should at least consider online savings accounts. This form of savings account offers many attributes that improve the customer experience. Of course, depending on your profile and personal preferences, you can see some disadvantages in this model of savings. The online format of a savings account may not fit everyone’s need, but it is worth it to take a look at what it has to offer. So here are the main pros and cons of digital savings accounts:
Higher Interest Rates are definitely one of the most appealing advantages of online savings accounts. In a traditional brick and mortar bank, the interest rate you can earn with your savings account will be anywhere from 1% to 1.25% annually. In comparison, a digital savings account can offer rates from 1.80% to 2.25%, which is, on average, 10x higher. On top of that, many online savings accounts offer even higher interest rates than that. Some of these online platforms use different tactics to be able to provide up to 10% interest return. Before you become suspicious, digital savings accounts are able to offer much higher interest rates because they don't have all expenses that come with a physical location. Branches' rents and water and electricity bills are some of the expenses that these online savings accounts don't have. In addition, digital savings accounts need fewer employees than traditional banks, since they don't need people in every location. This means fewer salaries to pay.
Low or No Bank Fees is a typical characteristic of digital savings accounts. Due to the costs of keeping physical locations, brick and mortar banks will charge you fees to keep your savings account. Unless you meet monthly balance minimums or get lucky with another limited exception, there is no escape from these fees. In contrast, online savings accounts typically charge low or no bank fees from their clients, regardless of what your balance is. Many digital savings accounts also have no minimum amount to open your account. So you can often open online savings accounts with the number of funds you wish without paying any maintenance fees. That definitely makes online savings accounts more affordable and inclusive.
Easy Access is another factor that makes digital savings accounts, or online bank accounts in general, more tempting than traditional ones. Anyone that has already opened an account at a brick-and-mortar bank knows how complicated and prolonged it can be. When it comes to opening an online saving account, you can often do it in less than 10 minutes. If you are over 18 and have a valid id or social security number, you are good to go and open your account. Once the account is opened, you can simply link it to your other bank accounts and transfer the desired amount. You can easily access your account from your computer, phone, or tablet with a username and password of your choosing. In the app, your whole banking profile will be available for you to keep control of your money.
Easy to Use Apps and Websites are a strong feature of online savings accounts. Traditional banks’ apps and websites are frequently hard to navigate. Some have complicated systems to enter your accounts online, confusing user experience, and tend to don't offer all their services through their online platforms. This happens because online banking technology is not their primary operation. But when it comes to online banks, it is their only operation. For online savings accounts, apps and websites are generally the only places where customers interact with the business. Thus, digital savings accounts, and online banks in general, spend a lot of time and capital optimizing these platforms. Usually, you can effortlessly navigate their apps and websites. They are almost always easy to register, make transfers and handle your money in general.
Having No Physical Locations is the biggest con of online digital savings accounts. Online savings accounts only existed in the digital sphere, so there are no branches that you can go to. Some people are comfortable with that and don’t mind the absence of a brick-and-mortar infrastructure. However, it is normal that the thought of your money only existing digitally makes you apprehensive. A great way to get used to this new way of saving money, as well as feel financially safer in general, is to don’t have all your cash in an online digital account. For example, you can use the digital savings account to create a 12-month emergency fund and then have another savings account at a local credit union as a shorter-term safety net.
Lack of Face to Face Customer Service can be an issue for some people, even though it is rarely a deal-breaker. Many people value an in-person conversation. It can be easier to explain any eventual demand when you are in front of a real person. With online banks, the customer service relationship will be usually done either through an in-app chat or by phone. Like every other person, you may also hate to solve problems with companies through the phone. Even though this is not ideal, it is rarely a deal-breaker since you will rarely have to call customer service. In addition, many traditional banks with branches still direct you to their call centers for certain problems because of bureaucracy or brick-and-mortar employees' limitations imposed by the bank to solve your issue. Of course, there are also many people that prefer to be able to solve their savings account issues from anywhere, without having to go to a branch.
When it comes to financial decisions, there is no one size fit all solution. It will ultimately depend on how much each pro and con weigh for you and your relationship with money. However, the benefits of online savings accounts can eventually fit everyone’s financial needs. You can start slowly, taking advantage of no minimum balances and no fees, and add a smaller amount to it. With time, as you get more comfortable with your digital savings account, you can add more or open others depending on your needs and goals.
The answer to this question depends completely on your needs as a consumer. If you are looking for the highest interest rate, you can look for this data when choosing your online savings accounts. You can also analyze if the provider of the savings account has other investment accounts that you can also join. If you don’t have much to put in your savings account at the moment, you can search for digital savings accounts that don’t charge any fees or demand a minimum deposit to join them. Regardless of your needs, there is a perfect digital savings account out there for you.