Online savings accounts offer some attractive features including minimum balance requirements that are generally lower than traditional savings accounts. In fact, the typical online savings account has no minimum balance at all, compared to minimum balances of hundreds of dollars required by many financial institutions with physical branches. Online savings accounts may not be right for savers who prefer dealing face-to-face with human customer service representatives in a physical location, however. A financial advisor can provide personalized advice based on your individual financial situation and goals.
The Role of Minimum Balances in Savings Accounts
Banks and similar financial institutions make most of their money by collecting interest from borrowers who take out auto, business and other loans. The banks get the money to make those loans from funds customers deposit to savings and other accounts. Banks have to spend money to maintain those customer deposit accounts. If an account doesn’t have sufficient funds in it, the bank may not be able to cover its costs with interest from loans.
To encourage customers to maintain higher balances, banks may set minimum savings account balances, on average these are going to be around $300 to $500 but some could be $100 or less. Banks may also use minimum balance requirements to manage risk and maintain stability, particularly during periods of heightened economic instability.
Customers who don’t meet the minimum balance requirement may be charged various fees, including a monthly account maintenance fee of $1 to $8. They may also pay fees for certain transactions, such as $30 for a wire transfer. All banks are not created equal when it comes to minimum balance standards. Online and traditional banks, in particular, tend to take different approaches.
The difference largely is due to the fact that it costs less money to run a bank with only an online presence than to operate a traditional bank with physical branches staffed by human tellers. Many online financial institutions choose to pass these savings on to customers by eliminating minimum balance requirements.
Online savings accounts with no minimums are likely to be more appealing to savers who are just getting started putting away money. For new savers and those with limited ability to save, having to pay fees because they don’t have enough to meet the balance minimum can make it harder to accumulate savings.
Choosing an Online Savings Minimum Balance
Maintaining a low savings balance can have some opportunity costs even if it’s not required to avoid fees. For instance, sometimes online banks will make higher interest rates available to account holders with larger balances. With this in mind, choosing an online savings account requires balancing multiple factors in addition to the required minimum balance. Here are some practical considerations to keep in mind:
Financial Goals and Budget
Before selecting an account based on the minimum balance, define your financial goals and assess your budget. Consider how much you can comfortably maintain in your savings account without affecting your daily expenses and financial obligations.
Compare the interest rates offered by different online banks. While low or no minimum balance accounts may offer competitive rates, some banks only offer the best rates to accounts with larger balances.
Monthly Fees and Other Charges
Fees can also have an impact. Examine the fee structure associated with each account. Some accounts may have monthly fees or charges for certain transactions unless balances are maintained above a minimum level.
Accessibility and Convenience
In addition to potential returns and costs, evaluate the accessibility and convenience of the savings account. Some savers place a high value on having online access to their savings accounts 24 hours a day and seven days a week. They may want to be able to check balances, transfer funds and perform other operations anytime and anywhere using a mobile app.
For others, it’s more important to be able to go into a physical branch when making deposits, withdrawing funds or checking the balance. When they need customer service, some bank customers prefer to interact face-to-face with a human teller rather than getting answers and support from a toll-free phone number, email address or chatbot.
Average minimum balances for online savings accounts play a considerable role in determining the accessibility and benefits of these accounts. Compared to traditional savings accounts that may have sizable minimum balance requirements, online accounts with no minimum balance are likely to suit a wider spectrum of savers, especially those just getting started or with limited income. Online accounts may also come with potential drawbacks, such as a lack of physical branches and face-to-face human customer service. To make an informed choice, assess individual financial goals and evaluate interest rates, fees and accessibility in addition to balance requirements.
- You may want to consult a financial advisor when considering the selection of the right online savings account for your needs. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- SmartAsset’s monthly Best Online High-Yield Savings Accounts ranks and describes top offerings on the basis of interest rates, fees, minimum balance requirements and other features.
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