In a world in which cash seems less and less necessary (hello Venmo), online banks have many advantages. Because they don’t have to maintain the same brick-and-mortar presence of traditional banks, the online variety can offer better rates on accounts and loans and lower fees.
Today, the majority of banking customers are banking either online, on their smartphone, or a combination of both, according to a recent digital banking survey by PwC. Plus, the widespread closures of physical bank branches, even temporarily, during the COVID-19 public health crisis have introduced more consumers to the benefits of online banking, whether as part of their traditional brick-and-mortar banking relationship or with an online-only bank.
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How to Choose an Online Bank
When it comes to choosing an online bank, there are a few things to consider:
Skip the fees. Choose a bank account that will charge you no monthly fees. This might depend on your behavior—maintaining a minimum balance, for instance, or linking the account to another account—but you can often avoid fees with the right bank.
Read the fine print. There are a variety of fees banks charge other than monthly fees, so make sure you understand what those are. Just because it’s an online-only bank doesn’t mean there aren’t rules to be followed.
Earn some interest. Online banks tend to pay higher rates, so do some comparison shopping to get the best rate you can. The top online savings accounts currently are paying close to 1.00% APY, compared to a national average savings account rate of 0.05% as of the week of September 14, 2020.
Check out the website and app. With an online bank, your primary interactions will take place via the bank’s website and its mobile app. Make sure you understand the available account management features. Both the App Store and Google Play provide reviews of the mobile apps for more insights.
Make sure you’re protected. Be certain that the bank is FDIC insured, which means that your deposits are insured, in the event of a bank failure, for up to $250,000 per account holder, for each account ownership category.
Best Online Banks
Here are a few of the best online banking options available today (note that the rates and fees listed below are subject to change):
Ally
Ally Bank traces its history back to 1919. It started out as GMAC, a division of General Motors, focused on auto financing. GMAC Bank formed in 2000 and become Ally Bank in 2009.
Today Ally Bank offers a range of financial products, including deposit accounts. auto loans, a credit card, and home financing. Through Ally Invest, it offers online brokerage services.
Banking products it offers: Interest checking, savings, money market, CDs, and a cash back credit card.
Rates (APY): 0.10% on checking (0.25% with $15,000 minimum balance), 0.80% on all tiers of savings, 0.75% on a 12-month CD, 0.50% on money market accounts.
Fees: No monthly fees for savings, $25 overdraft, $10 excessive transaction fee; no fees for CDs.
Website: ally.com
App: 4.7 stars on App Store, 4.0 stars on Google Play.
Access: 43,000 Allpoint ATMs.
American Express National Bank
American Express began as an express mail service in 1850 in Buffalo, New York. It entered the financial services industry in 1857 by launching a money order service to compete with the U.S. Post Office.
Today, American Express is best known for its credit cards that offer cash back, airline miles, hotel points and Membership Rewards. American Express also offers savings accounts, CDs, personal loans, foreign exchange and other banking services.
Banking products it offers: High-yield savings accounts and CDs.
Rates (APY): 0.80% on all tiers of savings, 0.30% on an 18-month CD.
Fees: No monthly fees and no minimum balance requirements.
Website: americanexpress.com/personalsavings
App: No apps are available for savings or CD accounts.
Access: No ATM access.
Barclays US Savings
The online banking division of Barclays is located in Wilmington, Delaware. Barclays originally started trading as goldsmith bankers in 1690 on Lombard Street in London, England. In 1736, James Barclay joined the bank and it eventually was renamed in his honor. Barclays introduced the world’s first ATM machine in June 1967 in Enfield, north London.
In the U.S., Barclays is primarily known for its consumer and small business credit cards with household names like JetBlue and Hawaiian Airlines. The Barclays U.S. banking division also offers online savings accounts and CDs.
Banking products it offers: Online savings accounts and CDs.
Rates (APY): 0.60% on all tiers of savings, 0.40% on a 12-month CD with no minimum balances.
Fees: No monthly fees.
Website: banking.barclaysus.com
App: 3.7 stars on App Store, 1.9 stars on Google Play.
Access: No ATM access.
Capital One
In 2012 Capital One finalized its purchase of ING Direct, one of the first internet-only banks in the United States. Initially rebranded as Capital One 360, the online banking operations have now been folded into Capital One. The 360 brand, however, remains in the names of its online banking products, such as its 360 Checking account.
Banking products it offers: Checking, savings, CDs.
Rates (APY): 0.10% on checking, 0.65% on savings, 0.30% on 12-month CD.
Fees: No monthly fees.
Website: capitalone.com/bank
App: 4.8 stars on App Store, 4.6 stars on Google Play.
Access: 39,000 ATMs.
Charles Schwab Bank
Charles Schwab is a full-service financial services firm that offers investment products, retirement accounts, banking and home loans. The firm manages $3.85 trillion in client assets and 1.4 million open banking accounts.
The Schwab checking account has been popular with travelers for years. Schwab does not charge fees for using other banks’ ATMs and it also reimburses ATM fees charged by those banks.
Banking products it offers: High Yield Investor Checking®, High Yield Investor Savings®, home loans, Pledged Asset Line.
Rates (APY): 0.03% on checking, 0.05% on savings.
Fees: No monthly fees.
Website: schwab.com
App: 4.8 stars on App Store, 4.1 stars on Google Play.
Access: Unlimited ATM fee rebates worldwide.
Chime
Mobile banking app Chime provides online-only banking services designed for the digital age. It excels with electronic deposits and payments and by offering innovative automated savings features. However, traditional banking activities such as writing checks or depositing cash require extra steps and joint accounts are not offered.
An innovative feature of Chime is that members who sign up for direct deposit can receive access to their paycheck up to two days earlier than their colleagues. For people on a tight budget, this can come in very handy.
Banking products it offers: Spending and Savings accounts.
Rates (APY): 1.00% on savings, no interest on spending.
Fees: No monthly fees.
Website: chime.com
App: 4.8 stars on App Store, 4.6 stars on Google Play.
Access: 38,000+ fee-free MoneyPass and Visa Plus Alliance ATMs, plus 38,000 cash-back locations at major merchants.
CIT Bank
CIT Bank was founded in 2008, although its history dates back to 1908. The online bank we know today offers savings and money market products, as well as certificates of deposit, and has recently added a checking account. The bank also lends to homebuyers.
Banking products it offers: Savings, checking, money market, CDs with options.
Rates (APY): up to 0.50% on Savings Builder (limitations apply, see below), up to 0.25% on eChecking (0.10% on balances under $25,000), 0.55% on money market, 0.30% on 12-month CD with minimum $1,000 deposit, 0.30% on 11-month CD with penalty-free withdrawals. Rates are accurate as of 10/23/2020.
Fees: No monthly fees.
Website: bankoncit.com
App: 4.6 stars on App Store, 4.1 stars on Google Play.
Access: No ATM access. ATM fee reimbursement of up to $15 per month.
Savings Builder: CIT Bank offers what it calls the Savings Builder account. The account requires customers to maintain a balance of $25,000 or more, or make at least one monthly deposit of $100 or more. Those who meet either of these requirements earn what CIT calls an Upper Tier interest rate. Here are the tiered rates on the Savings Builder account:
- Base Tier: 0.30% APY for balances under $25,000
- Upper Tier: 0.50% APY for balances under $25,000 but with at least one monthly deposit of $100 or more
- Upper Tier: 0.50% APY for balances of $25,000 or more
Discover Bank
The first purchase with a Discover credit card was made on September 17, 1985, in the amount of $26.77. A lot has changed since that first purchase at a Sears store in Atlanta, including the introduction of deposit accounts. Today, Discover’s online bank (Member, FDIC) offers checking and savings products, as well as an IRA CD.
Banking products it offers Checking*, Savings, Money Market, CDs.
Rates (APY): 0.55% on savings, 0.40% on money market balances under $100,000 (0.45% on balances $100,000 and over), 0.60% on 12-month CD with minimum $2,500 deposit. Discover Checking offers 1% cash back on up to $3,000 in debit card purchases each month.
Fees: No monthly fees on any accounts.
Website: discover.com/online-banking
App: 4.8 stars on App Store, 4.5 stars on Google Play.
Access: 60,000 ATMs.
Marcus by Goldman Sachs
Goldman Sachs was founded in 1869 and is one of the premier names in high net worth investing. The firm offers investment banking, institutional client services, investing and lending, and investment management.
Marcus offers online savings accounts, CDs and personal loans. For savers looking for a higher rate without locking their money away in a long-term CD, Marcus offers a 7-month no-penalty CD. It has a $500 minimum deposit with no early withdrawal penalty if you need to access your money.
Banking products it offers: Savings accounts, CDs, loans.
Rates (APY): 0.60% on savings, 0.85% on a 12-month high-yield CD with a $500 minimum balance.
Fees: No monthly fees.
Website: marcus.com
App: 4.9 stars on App Store, 4.5 stars on Google Play.
Access: No ATM access.
Radius Bank
Radius Bank was founded in 1987 and is headquartered in Boston, Massachusetts. It has over $1.3 billion in assets and has won multiple innovation awards in recent years.
The bank offers an array of traditional banking products for consumers, businesses and institutional customers. You’ll find checking, savings, CDs and loans, as well as escrow and cash management services for clients with more complex needs. The rewards checking account offers 1.00% cash back on all debit card purchases when you maintain a $2,500 average balance or receive $2,500 in direct deposits each month.
Banking products it offers: Checking and savings accounts, CDs, loans.
Rates (APY): Rewards checking earns 0.10% on balances of $2,500 to $99,999.99; 0.15% on balances $100,000 and above. High-yield savings earns 0.15% for balances of $2,500 to $24,999.99, and 0.25% for balances of $25,000 and up. A 12-month CD earns 0.50% APY with a minimum balance of $500.
Fees: No monthly fees.
Website: radiusbank.com
App: 4.5 stars on App Store, 4.3 stars on Google Play.
Access: Unlimited ATM rebates.
Synchrony
Previously known as GE Capital Retail Bank, Synchrony Bank is a subsidiary of Synchrony Financial, headquartered in Stamford, Connecticut.
Banking products it offers: Savings, money market, CDs.
Rates (APY): 0.75% on high-yield savings, 0.50% on money market accounts, 0.75% on 12-month CD with minimum $2,000 deposit.
Fees: No monthly service fees.
Website: synchronybank.com
App: 4.3 stars on App Store, 3.8 stars on Google Play.
Access: Synchrony doesn’t charge ATM fees and will reimburse for up to $5 in fees when you use domestic ATMs.
Final Thoughts
If you’re ready to change banks, consider opening an online bank account. There are many options to choose from, depending on what your needs are. Some banks only offer online savings accounts, while others can be a full replacement for your existing bank. Because the online bank’s costs are lower, you’ll often earn higher rates on your money and pay less in fees than with your current bank.
Accounts can usually be opened in a manner of minutes online or through a mobile app. Plus, many have no minimum balance requirements, which makes it easier to transition your direct deposits and automated payments over to the new account.
Frequently Asked Questions (FAQs)
What is an online bank?
An online bank is one that operates exclusively online. It has no physical branches. This distinction may seem insignificant, as most banks offer some form of online banking services. For consumers, however, the difference between an online bank and one with branches is important.
Online-only banks do not incur the costs to open and operate a network of branches. As a result, they tend to offer higher rates on deposit accounts and lower fees. Keep in mind that this trade-off means you cannot walk into a branch if there’s ever a problem. Instead, you’ll be communicating over the phone, via email or online chat to resolve any issues.
What are the best online banks?
The best online banks are those that meet your needs. If you’re happy with your current banking relationship, but want to earn more interest on your savings, choose an online bank that offers the highest APY.
For those looking to replace their current bank, focus on the overall package. Find an online bank that does not charge fees, offers a high rate of interest and provides easy access to your money via ATM and mobile apps.
Are online banks safe?
The short answer is yes. FDIC insurance is the same for online banks and traditional branch-based banking. It’s also the same whether you open an account online or in person for those banks that have physical locations. The key is to make sure you are working with a legitimate financial institution that is FDIC insured.
In many ways, online accounts are safer than traditional bank accounts because of online statements and the focus on digital transactions instead of paper checks. Avoiding paper statements and checks eliminates an opportunity for fraud that many thieves take advantage of.
Are online banks FDIC insured?
Not all online banks are FDIC insured. Some online banks are actually cash management accounts, which fall under different protections.
The Federal Deposit Insurance Corporation insures bank accounts through mandatory fees that participating banks pay to the government. FDIC-insured accounts are covered up to $250,000 per depositor, per ownership category. You can increase this insurance coverage based on how you title the accounts or by opening accounts at additional banks.
How does online banking work?
Customers of online banks initiate transactions online, through a mobile app, by phone or by mail. They also can link online bank accounts with accounts at traditional banks. Once linked, funds can be transferred between accounts in a matter of days.
Whether or not online banking offers online bill pay, check writing or debit cards that can be used at retailers or ATMs will vary based on which online bank and account you choose. Because most online banks do not have physical locations, walking into a branch to deposit a check with a teller is not an option.
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