If you are in the process of saving money to purchase an investment in the future, online savings accounts are a great place to store your cash for the short-term. There are a number of different companies offering online savings accounts, but most of them are offering interest rates between 3.5% and 4.25%. Since interest rates are low right now, that's a great interest rate for a savings account. The savings account for my local bank offers an interest rate of 0.95% APR. That's less than 1%!

     How an Online Savings Account Works - To understand how an online savings account works, you must first understand how a traditional savings account works. Banks offer savings accounts so that they can use your money, to make money. They loan your money to people who need it, such as someone getting a mortgage for a house, or getting a loan for a new car, and charge those people a high interest rate. They pay you a slightly smaller interest rate. The money they make from the higher interest rate minus the money they pay you in interest is the bank's profit. Of course, you can always withdraw money from your savings account if needed.

     Online savings accounts work the same way. But with an online savings account, everything is done electronically and little (if any) paperwork is involved. You make deposits to your savings account electronically, you get statements for your savings account e-mailed to you instead of mailed to you, and you make withdrawls from your savings account electronically. In order to have an online savings account, you'll need to have a checking account. You link your online savings account to your checking account so you can deposit or withdraw money to/from your online savings account.

     What to look for in an Online Savings Account - Look for an online savings account that offers a great interest rate and requires no minimum balance. Also, make sure that the savings account is FDIC Insured for at least $100,000.00. That way incase the bank goes bankrupt (Huh? Yes, it can happen, but it's very very rare), you'll still get your money.

     Also, look for an online savings account that gives you a lot control your money. For example, $50.00 is taken out of my checking account and deposited into my online savings account every week. This occurs automically. It's a completely brainless and easy way for me to save money. I can change the variation to every month, or every day, or once every two months if I wanted to.

     Online savings account allow you to conviently save your money, while provding you with a much higher interest rate compared to traditional savings accounts.