In Microsoft's cloud.
Dialogue will automatically change to OneDrive.
To protect against device loss or damage and to provide access to files, we recommend storing them in Office 365.
Today we are announcing a new feature that makes it easier for you to create and save your Word, Excel, or PowerPoint document directly to the cloud. When you go to save an Office365 document using Ctrl + S (Windows), Cmd + S (macOS), or the Save button, the new dialog box will default to OneDrive or SharePoint Online. And save to save new experience before. Once the document is saved in the cloud, you can easily rename the file and change the location from the title bar.
The update will be out to Word, Excel, or PowerPoint with the February Update to Office 365 on Windows and Mac in early February.