If you have not opened an online savings account, and don’t even know where to start, here’s everything you ever wanted to know about online savings accounts - or at least links to the information you want. If you have more questions, please ask via the comments section of this post.

NOTE: For American readers, cheque = check, chequing = checking.

1. What is an online savings account?

   An online savings account is a relatively new type of liquid investment vehicle that banks are offering. Typically, you can only set up such accounts online through a bank’s website. So their costs are lower, and they pass on some of the savings by offering you a higher interest rate.

2. Why do I want an online savings account?

   As mentioned above, you get a much higher interest rate with an online savings account. You can also often tie several bank accounts to an online savings account, so that your money can be transferred from multiple sources.

3. What is % APY?

   APY means Annual Percentage Yield. What it represents is the effective compounded interest rate. For example, if you were to put just one dollar into an online savings account for one year, the APY is the percentage increase that your dollar will gain. So if APY is 5%, you will have $1.05 after one year. The actual interest rate will be less than 5%, but compounded either daily or monthly - depending on the bank - your effective annual yield is 5%.

4. What is the highest interest rate for an online savings account?

   Interest rates vary from bank to bank and country to country. The highest rates I’ve seen are for banks in Australia and the US, but that may change. In fact, to stay competitive, banks are often changing their rates monthly or even weekly.

5. How do I choose an online savings account?

   Don’t pick an online savings account by interest rate alone. Some banks with the highest rates also have the most conditions. Not everyone can regularly meet some of these conditions - such as maintaining a high minimum balance. So banks sometimes give you a lower rate for a lower balance.

   Instead, carefully read over the conditions of each bank offering online accounts, and determine which ones will suit your spending and savings habits.

   You can read reviews of online savings accounts for a number of banks at OSAWatch, a website dedicated to online savings accounts, liquid investments, and savings tips.

6. How do I open an online savings account?

   I’m simply going to point you to OSAWatch’s How to open an online savings account. This is information for the United States only. If I find info for other countries, I’ll add links here, or somewhere on this site.

7. What are some good banks for online savings accounts?

   Two of the banks that have been offering online savings accounts for longer than most other banks are Emigrant Direct and Ing Direct. They offer convenience and a very minimum of conditions, no balance requirements, and linking to chequing accounts from pretty much any bank. For some people, this is far more important than getting the highest interest rate.

8. Can I withdraw money from an online savings account?

   Obviously. Otherwise, what would be the point? But how you can withdraw money varies depending on your bank.

   Some actually giving you a card for an ATM (Automated Teller Machine), aka ABM or instant teller machine. So you can use your account like a regular bank account, subject to a maximum number of withdrawals per month.

   Others require you to request a withdrawal, and they send you a cheque. (Although that was probably more common in the late 1990s.)

   Still others let you transfer money from your online savings account to the chequing account that you have tied to it. (Both accounts may need to be at the same institution.)

9. Can I use my online savings account to purchase things online?

   As far as I know (AFAIK), no. None of the banks have tied their online savings accounts to online shopping websites.

10. How do I transfer money to an online savings account?

    There are different methods for different banks. Most require you to either mail in a cheque or to tie a bank account to the online account. For the latter type, you can schedule regular money transfers into the online account, or even transfer money manually via the bank’s website.

    A few banks issue you a credit card, and you get a percentage of expenditures deposited into your online savings account. But you must have a good credit rating, because you need to apply for the credit card at the same time. This type of online account also allows you to tie a chequing, for scheduled or controlled money transfers.

11. Can I link a regular chequing account from one bank to an online savings account at another bank?

    For some online accounts, yes. In fact, a few let you tie two or three different regular chequing accounts to a single online savings account.