Majority of savers still don’t have an online account: Here’s why their rationalizations are costing them

Savings account rates at many banks are at their highest levels in more than a decade, with the most competitive yields often available from online banks. However, many consumers are missing out on the benefits of a high-yield savings account. In fact, only about 22 percent of Americans with a savings account earns a competitive rate of at least 3 percent, according to Bankrate’s Online Savings Survey.

Among consumers with a savings account that’s not from an online bank, nearly one-third (30 percent) say it’s because they’re worried about the security of their money, Bankrate found. The bottom line is your money can be just as safe with an online bank as it would be with a bank that has branches.

“As long as your money is with a federally insured bank or credit union and your total balance is within the deposit insurance limit, your money is safe,” says Greg McBride, CFA, Bankrate Chief Financial Analyst. “Online banks are regulated the same as the bank down the street, and many online banks either have branches in a different part of the country or are part of a much larger financial entity.”

People’s fears about the safety of their money in the bank were highlighted in the news during the high-profile Silicon Valley Bank and Signature Bank failures. Prior to collapsing, both troubled institutions experienced bank runs as worried depositors rushed to move their funds to other banks.

While SVB and Signature Bank each had a significant portion of uninsured deposits (because some customers’ deposits exceeded federal insurance limits), regulators announced that all depositors would be made whole. Normally, the Federal Deposit Insurance Corp. (FDIC) insures up to $250,000 per depositor, per FDIC-insured bank, per ownership category. As long as your money is within the limits and guidelines, the FDIC guarantees it’s safe.

Key Bankrate online savings account data

*Respondents could select more than one answer.

Traditional bank vs. online bank key differences

You’ll often find higher annual percentage yields (APYs) as well as fewer (or no) fees at online-only banks than at large brick-and-mortar banks. Those who prefer in-person banking may opt for a traditional bank instead — although consumers can get the best of both worlds by opening an online savings account in addition to having one at a bank with branches.

Things that set online banks apart from traditional banks include:

• Better rates: Online banks don’t have the costs of maintaining branches, which may be reflected in higher yields. Some may also offer competitive rates to try and attract customers of big banks, which often pay rock-bottom yields.
• Fewer (or no) fees: In general, you’re more likely to find accounts with no minimum balance requirements or monthly maintenance fees at online banks than at brick-and-mortar ones.
• ATM use: Some online bank accounts come with fee-free access to a large ATM network, such as Allpoint or MoneyPass. Others may be part of smaller networks, in which case you’re more likely to encounter fees for out-of-network ATM use. Large brick-and-mortar banks tend to offer plenty of their own ATMs in many areas, allowing for fee-free use.
• No branches: Since online-only banks don’t offer branches, customers use a computer or smartphone app to conduct transactions such as transfers to or from the account.
• Customer service: Customers with questions or concerns will need to resort to phone support or sending messages online. Those who prefer face-to-face interaction may opt for a bank that offers one or more branches near them.

Rationalizations for not having an online bank account

Despite online banks offering significantly higher rates of return than brick-and-mortar banks, many consumers forgo online banks due to notions regarding things like the security and accessibility of their money. In reality, earning competitive interest at an online bank doesn’t necessarily mean you’re required to give up branch banking or that your money isn’t safe.

• More than half (55 percent) of people with short-term savings do not have an account with an online bank.
• Around 4 in 10 U.S. adults (41 percent) with short-term savings are earning less than 1 percent in interest, including 16 percent who aren’t earning any interest.
• The top two reasons savers told Bankrate they don’t have an online savings account included preference for access to a local branch (46 percent) and comfort with their current financial institution (41 percent).

Financial security

Among savers without online bank accounts, 27 percent of men and 32 percent of women say the reason they don’t have such an account is because they worry about the security of their money, Bankrate’s Online Savings survey found.

Regardless of whether you use an online bank or a branch bank, a significant factor in determining the security of your savings account funds is whether the bank is FDIC insured.

“As long as you’re dealing directly with a federally insured online bank, they are regulated the same as the bank or credit union down the street,” Bankrate’s McBride says.

Of those who don’t have online bank accounts, the percentage concerned about the security of their money in an online bank increases overall with age — with baby boomers significantly more concerned about this than other generations — according to Bankrate’s survey. This concern doesn’t vary a great deal across income levels, with somewhere around 30 percent of respondents at all income levels feeling concerned about the security of their money in an online bank.

Comfort level with personal banks

In Bankrate’s Online Savings survey, being comfortable with their current financial institution was cited by 41 percent percent of savers as a reason for not using an online bank. One way around this is to stick with your current bank while also opening a high-yield online savings account.

A significantly higher percentage of older survey respondents reported wanting local branch access as a reason they don’t switch to an online bank.

“By linking an online savings account to the account at your primary financial institution, you keep the local branch access,” McBride says.

Similarly, higher percentages of Generation Xers and baby boomers reported not opening an online bank account due to their comfort level with their current bank. Lower percentages of Generation Z members and millennials reported feeling this way.

“You can link an online savings account to the account at your primary institution and change nothing in your day-to-day financial routine,” McBride says. “You’re just moving your savings to a place where it will be welcomed with open arms and higher returns.”

“Transfers made into or out of an online bank are typically completed in one to two business days and can be initiated online or increasingly via mobile app,” McBride says.

Other reasons for not opening an online account

Nearly one-fifth (16 percent) of those without an online savings account say the reason is they don’t have enough savings to make it worthwhile, according to Bankrate’s Online Savings survey.

However, it’s easy to find accounts that can be opened with any amount of money whatsoever. “Bankrate.com lists a number of top-yielding online accounts that are available nationwide with no minimum deposit,” McBride says.

Savers — including those without much money to spare — will see their nest egg grow more quickly in a high-yield savings account, which can often be found from the best online banks.

“If you saw a $20 bill on the ground, would you pick it up?” McBride asks. “With just $500 in savings, a 4 percent APY will generate $20 in annual interest earnings — $20 you don’t have now.”

It often takes 15 minutes or less to open a bank account online, and it’s not difficult to find savings accounts that earn competitive yields of 3 percent or higher. Such rates are exponentially higher than the 0.01 percent yields commonly offered from big brick-and-mortar banks.

How to protect your online banking account

In addition to the higher rates of return, many consumers prefer the convenience of online banking. The downsides that may come with this convenience include that it relies completely on the internet, so website crashes and service disruptions can happen. What’s more, customer service with an online bank doesn’t include an option of going into a branch to have an in-person conversation with a teller.

A common fear people have about online banking is that hackers will steal their information and drain their bank account. The best protection against this is finding a bank that uses strong security features — whether it’s the website provided by an online-only bank or a brick-and-mortar one.

Important online banking security features include the presence of “https” at the start of its web address (rather than just “http”), which indicates the address is secure. Two-factor authentication is another crucial type of security, which requires your password as well as a second piece of information. This may include answering a security question correctly that you’ve already set up, or it can mean retrieving a passcode sent to your phone.

You can also protect your online bank accounts by staying off public WiFi when doing your banking, which could otherwise allow hackers to intercept your password. Other ways to protect yourself include changing your passwords regularly and not carrying written-down passwords or PIN numbers in your purse or wallet.

Bottom line

Opening a bank account online is often quick and easy, requiring just a few minutes of your time. Some online-only banks that offer high-yield savings accounts include Ally Bank, Marcus by Goldman Sachs and MySavingsDirect — and none of these accounts require a minimum deposit or charge monthly maintenance fees.

When you open an online bank account and also have accounts with other banks, it’s often safe and easy to transfer money between these accounts — which makes it convenient to fund a brand new online bank account. Depending on the bank, transfers can happen instantaneously or take place over one or more days.

In all, an online bank account can be a safe place to earn a competitive rate on your emergency fund or money set aside for other goals. It can serve as your sole savings account, or it can supplement other savings accounts at brick-and-mortar banks or other institutions.

• Methodology

  All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 3,674 adults, among whom 2,485 have short-term savings. Fieldwork was undertaken February 28 – March 3, 2023. The survey was carried out online. The figures have been weighted and are representative of all US adults (aged 18+).