What Are Online Banks? Learn the Pros and Cons

What is online banking?

Online banking involves managing your bank accounts with a computer or mobile device — including transferring funds, depositing checks and paying bills. Most banks and credit unions, even those with branches, let customers access their bank accounts via the internet.

An online bank, on the other hand, is typically one you access only through the internet. Here are the pros and cons of online banks.

Pros of online banks


Because online banks don’t have to spend money on branch maintenance, they tend to have lower or no fees, and higher interest rates on deposit accounts. The best online savings accounts have APYs upward of 2%. Compare that with the 0.01% APY offered by many large traditional banks, and the national average of 0.10%.

A few percentage points difference might not sound like much, but the larger your balance and the longer it’s deposited, the more it matters. A balance of $10,000 deposited for 10 years at 0.01% will earn $10; at 2.25%, it earns just over $2,500. If you’re paying a monthly fee on your savings at a traditional bank, you’re not netting any gains at all.Cons of online banks


Sometimes you just want to talk to a teller in person. With an online bank, prepare to have limited access to in-person help, though some have a handful of branches, mostly in cities.


A handful of online banks with some of the highest APYs on savings accounts don’t offer checking accounts.


Some online banks have cumbersome processes to deposit cash. Options can include using a deposit-accepting ATM or putting cash into a traditional bank account and transferring that money to your online account. You could also convert the cash into a money order, which you may be able to deposit electronically using your online bank’s mobile app.

Should you open an online bank account?

Look at other options, like local credit unions and community banks, to make sure you’re banking with an institution that suits your needs and aligns with your values.

Remember that it’s perfectly acceptable to have accounts at more than one bank; it’s not imperative that you choose one over the other. In fact, having accounts at both a traditional bank and an online bank can ensure that you have the best of both worlds — higher interest rates and access to in-person help when you need it.

If you do want to make a big change, learn how to switch banks by stopping recurring transfers and direct deposits and untethering linked accounts.

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