Key takeaways

• As more consumers move away from traditional banking, online banks have become a popular alternative.
• They offer a variety of features, lower fees, and easy-to-use technology that appeals to tech-savvy individuals.

Summary of Best Online Banks

1Financially’s picks

1. What is an online bank?

An online bank is a financial institution that operates primarily over the internet, without physical branches.

All banking activities, including deposits, transfers, account management, and customer support, are conducted online through websites and mobile apps.

These banks are able to offer better rates and lower fees due to their minimal overhead costs compared to traditional brick-and-mortar banks.

2. Are online banks safe?

Yes, online banks are safe.

Like traditional banks, online banks are regulated by the same financial authorities, such as the Federal Deposit Insurance Corporation (FDIC) in the United States. This means your deposits are insured up to $250,000 per depositor, per bank, in the event the bank fails.

Additionally, online banks employ strong security measures, including encryption, multi-factor authentication (MFA), and fraud detection tools, to ensure your data and funds are protected.

3. How do online banks make money if they don’t charge fees?

Online banks are able to keep their fees low by reducing overhead costs—such as maintaining physical branches and staffing them—allowing them to pass the savings on to customers.

They still generate revenue through:

• Interest rate spreads: Online banks typically offer high-interest rates on savings accounts and loans. They earn money by lending out the deposits at higher interest rates while paying lower rates to customers.
• Fees for additional services: While many online banks don’t charge monthly maintenance fees, they may still charge fees for services like overdrafts, ATM withdrawals at out-of-network machines, or expedited payments.
• Loans and credit products: Some online banks make money by offering personal loans, credit cards, mortgages, and auto loans, earning interest on the funds they lend.

4. What types of accounts can I open with an online bank?

Online banks typically offer a wide range of financial products, including:

• Checking Accounts: These are used for daily transactions, such as deposits, bill payments, and withdrawals. Many online checking accounts come with debit cards, direct deposit, and the ability to send and receive payments.
• Savings Accounts: Online savings accounts often have higher interest rates than traditional banks. They are used to save money and earn interest over time.
• Money Market Accounts: These accounts are similar to savings accounts but usually offer higher interest rates in exchange for higher minimum balance requirements.
• Certificates of Deposit (CDs): A CD is a time deposit with a fixed interest rate for a specific period of time. You cannot withdraw the funds until the maturity date without paying a penalty.
• Loans and Mortgages: Some online banks also offer personal loans, home equity loans, student loans, and mortgages.
• Credit Cards: Many online banks offer credit cards with various rewards and benefits.

5. How do I deposit money into my online bank account?

There are several ways to deposit money into your online bank account:

• Direct Deposit: This is one of the easiest ways to deposit money into your account. You can set up direct deposit for your paycheck or government benefits directly into your online bank account.
• Mobile Check Deposit: Most online banks offer a mobile app that allows you to deposit checks by taking a picture of them with your smartphone or tablet.
• Bank Transfers: You can transfer money from another bank account to your online bank account using an ACH (Automated Clearing House) transfer or wire transfer.
• Cash Deposits: While many online banks don’t have physical locations for cash deposits, some have partnerships with ATMs or retail locations that accept cash deposits.

6. Can I use ATMs with an online bank?

Yes, most online banks provide access to a network of ATMs that you can use without incurring fees. Some online banks even reimburse you for ATM fees charged by other banks.

However, you should check with your specific online bank to see if they offer surcharge-free ATMs or if they have any restrictions on out-of-network ATM withdrawals.

Additionally, online banks may partner with large ATM networks, such as Allpoint or MoneyPass, to provide easy access to ATMs nationwide.

Many online banks also offer the ability to withdraw funds from physical retail locations, such as CVS, Rite Aid, and Walgreens, if they have a partnership.

7. Are there any fees associated with online banking?

While online banks typically have lower fees than traditional banks, there are still some fees to be aware of:

• Overdraft Fees: If you spend more money than you have in your account, some online banks may charge an overdraft fee. However, many online banks offer overdraft protection options or may decline the transaction to prevent fees.
• ATM Fees: If you use an ATM outside of your bank’s network, you may be charged a fee. However, many online banks offer reimbursement for out-of-network ATM fees.
• Wire Transfer Fees: Sending or receiving a wire transfer may incur a fee, depending on the online bank’s policies.
• Paper Statement Fees: Some online banks charge a fee for receiving paper statements, so opting for e-statements is often a way to avoid this cost.
• International Fees: If you use your debit card abroad, there may be foreign transaction fees or currency conversion fees.

8. What are the benefits of online banking over traditional banking?

There are several advantages to choosing online banking over traditional banks:

• Lower Fees: Online banks typically have fewer fees than traditional banks, as they don’t have the overhead costs associated with physical branches.
• Higher Interest Rates: Online banks often offer higher interest rates on savings accounts and CDs, which can help your money grow faster.
• 24/7 Access: You can access your account and perform banking activities anytime, anywhere, as long as you have an internet connection.
• Convenience: Online banking allows you to perform all your banking needs—pay bills, transfer money, check balances, and more—at your convenience, from the comfort of your home.
• Advanced Technology: Many online banks offer modern banking features such as mobile apps, instant money transfers, and automatic savings tools, which traditional banks may not provide.

9. Can I apply for a loan or credit card through an online bank?

Yes, many online banks offer personal loans, auto loans, mortgages, and credit cards. The application process is usually done online through the bank’s website or mobile app.

The benefits of applying for loans and credit cards through online banks include:

• Competitive Interest Rates: Online banks often offer better rates than traditional banks.
• Simple Application Process: The application process is usually quick and easy, with most banks allowing you to apply in minutes.
• Convenience: You can manage your loan or credit card from your online account, making it easier to track payments and manage your debt.

10. How do I switch from a traditional bank to an online bank?

Switching from a traditional bank to an online bank is a straightforward process:

1. Research online banks: Take time to compare online banks based on the features you need, such as fees, interest rates, and account types.
2. Open an account: Once you’ve chosen an online bank, open your new account by providing your personal information, including your address, Social Security number, and identification documents.
3. Transfer funds: Transfer your funds from your traditional bank account to your new online bank account. You can do this via wire transfer, ACH transfer, or by depositing checks.
4. Set up direct deposit: If you receive your paycheck through direct deposit, make sure to update your employer with your new account information.
5. Close your old account: After you’ve successfully transferred all your funds and updated any automatic payments, you can close your old account.