An online savings account is a no-frills account that is managed over the internet.
These accounts generally offer little more than a place to store money and earn interest – so if you want to pay bills or make withdrawals, you have to do so through a linked account.
In return, online savings accounts generally offer higher interest and lower fees.
Many online savings accounts encourage savings by providing financial incentives to:
- Make regular deposits
- Make minimal withdrawals
- Keep your balance above a certain amount
The other type of online savings account
Sometimes, when people talk about ‘online savings accounts’, they’re actually referring to accounts offered by online-only lenders – that is, lenders that don’t have any physical branches for you to visit.
If you want to open an account – you do it over the internet.
If you want customer service – you get it over the internet or over the phone.
Online savings accounts won’t suit you if you want to be able to pop into a branch and have a face-to-face conversation with a member of staff.
Some people also wonder how secure and trustworthy a lender can be if it doesn’t have a bricks-and-mortar presence.
However, online-only lenders claim that customers benefit from this lack of infrastructure, for two reasons.
First, they argue that this makes them more flexible and dynamic, thereby resulting in better customer service.
Second, they point out that they have lower overheads, which can get passed onto you in the form of higher interest and lower fees.
Another point worth mentioning is that the federal government has promised to protect your savings.
Under the Financial Claims Scheme, the government guarantees up to $250,000 for each account holder at each licenced bank, building society or credit union incorporated in Australia. Click here for the full list of lenders covered by the Financial Claims Scheme.