The biggest difference between online savings accounts and traditional (brick-and-mortar/passbook) savings accounts is their APYs and fees. Since online savings accounts don’t have physical branches that need to be maintained, or tellers, managers, and security to pay, their overhead costs are lower. They pass those savings on to their customers by way of higher interest rates and lower fees, if any.  

Online savings accounts and traditional savings accounts also differ in convenience. With online savings accounts, if you want to make a deposit (or withdrawal), you often have to transfer money from another linked account (which can take a few days). You can also make deposits via check, wire transfer, or direct deposit. However, some online savings accounts may partner with a network of ATMs, like Allpoint, allowing you to access your funds instantly.  

With traditional savings accounts held at banks with physical locations, you can access your money more easily by just stopping by your local branch or going to an ATM. 

Annual Percentage Yield (APY) is the percent of return (also known as interest) deposited cash in an account earned over a year. So let’s say you deposited $1,000 into a saving account with a 3.0% APY. If left untouched, at the end of a year, that $1,000 would grow to be $1,030 — you earned $30 in interest. 

Compound interest is the interest you earn on interest. So, let’s reference the example above with the $1,000 initial deposit and the 3.0% APY. At the end of year one, your money will grow to $1,030. Now for year two, you’ll earn a 3.0% APY on that $1,030 and should have $1,060.90 at the end. 

A cash management account (CMA) combines features of a checking, savings and/or investment account. It is usually offered by financial institutions that are not banks or credit unions, like brokerages. However, they often partner with banks to store deposited funds. They offer APYs that are higher than what you would find in a traditional savings account, have low fees (if any), and you can access your money with the ease of a checking account.  

Since CMAs are not issued by banks or credit unions, not all CMAs are FDIC insured. 

Offered by banks and credit unions, a certificate of deposit (CD) is a type of savings account that pays a fixed interest rate on a fixed amount of deposited cash that an account holder agrees to leave untouched for a fixed term ranging from a few months to a few years.  

The money deposited into CDs is borrowed by the bank or credit union issuing the account. In exchange, and to compensate for their illiquidity, banks, and credit unions offer higher interest rates on these accounts than traditional savings accounts. Generally, the longer the term, the higher the interest rate. When the term is up, you get the initial deposit plus the interest it earned.  

If an account holder withdraws their money before a term’s end (also known as the date of maturity), they will likely be charged a hefty penalty fee, which can offset any interest that has been earned. 

Despite the name, a money market account (MMA) has nothing to do with the stock market. It is a savings account issued by a bank or credit union that tends to pay a higher interest rate than traditional savings accounts and may offer debit cards and check-writing privileges. Though MMAs provide easier access to funds, most still have monthly transfer limits and other restrictions and requirements associated with many savings accounts. 

FDIC stands for the Federal Deposit Insurance Corporation. It’s an independent agency of the U.S. government, one of two, that protects depositors by supplying deposit insurance on bank accounts if a bank fails. The maximum insurable amount for a qualified account is $250,000. So, if you have an FDIC-insured bank account and the bank fails, the FDIC will reimburse you for your losses of up to $250,000.  

The National Credit Union Administration (NCUA) is the other government-backed agency that provides deposit insurance, specifically for deposits made into credit union accounts. The maximum insurable amount for a qualified account is also $250,000.  

SPIC stands for Securities Investor Protection Corporation. This is a federally mandated, non-profit that provides deposit insurance for investment accounts. The maximum insurable amount for a qualified account is also $500,000.

The requirements documentation and information you need to provide to open a savings account differ slightly from financial institution to financial institution. An online savings account may require less info, but you’ll want to have the following things handy at the time of account opening: 

• One or two forms of government-issued IDs — like a driver’s license or passport 
• Social security number or individual taxpayer identification number 
• Utility bill with current address information on it 
• Contact information — legal name, address, email, phone number 

You will also likely be required to fund your account immediately once opened. 

You can always find details about account opening requirements on the issuing financial institution’s website.