How Does an Online Savings Account Work?

An online savings account is an account that is opened and completely managed online with little or no paper transactions necessary. Online banking companies, unlike traditional banks which have banking centers and associated overhead costs, have fewer expenses, and therefore pass on those savings to their customers in the way of higher returns, no fees and no minimums to open accounts.

Some of the early pioneers of online savings accounts are Emigrant Direct with its American Dreams Savings Account and ING Direct with its Orange Savings Account. Some new arrivals to the scene include Capital One and E*Trade.

Opening

Online savings, for the most, part are paperless since you can open an account online. Some banks will have you fax them some signed forms. They all have ways of verifying your identity. ING allows you to open an account online in about 5 minutes. After filling out your personal information, you will be asked to link the savings account to an existing checking account. Two small deposits will be made. Once you verify those deposits, your identity has been verified and you can start saving.

Funding and Fees

Funding of your online savings account comes from your linked checking account. Some banks allow you to have more than one linked account. Transfers between accounts are usually free. You can also set up an automatic savings plan that allows you to make regular deposits into your online savings account from your linked checking account.

Most online savings accounts also do not have fees or penalties attached to them because they are not associated with brick-and-mortar banks that incur huge overhead costs to carry out their services.

Resources

• ING Direct Orange Savings Account
• Emigrant Direct American Dreams Savings Account