Best Online Bank Accounts
What is an online bank?
An online bank, also known as an internet bank, is a financial institution that operates solely online and does not operate any physical branches. This lack of operating a physical branch lowers the bank's expenses, thus allowing the bank to pass on the savings to its customers via lower fees and/or higher APYs. Customers can manage their accounts through apps or websites and typically have access to a full range of account types, much like a traditional bank. The biggest drawback to an online bank is that if a customer has an issue or needs help, they must contact customer service via chat, email, or phone only.
What is online banking?
Online banking is banking that is done through a website or a mobile app. Banking is conducted virtually, either through a website or mobile app. Most traditional banks and credit unions offer online banking options and features similar to what online-only banks offer.
How does online banking work?
Online banking is done solely online via a bank's website or mobile app. For traditional banks that offer online banking accounts, they typically require that accounts be opened online, funded via online bank transfers, and all transactions processed online. This is similar to online-only banks, with the exception that some traditional banks do allow certain transactions to be done at a branch.
Pros and Cons of using an online bank
| Low or no monthly service charges. | No physical branches available. |
| Low minimum opening deposit requirements. | Accounts can only be funded via online bank transfers from other banks. |
| No monthly balance requirements. | Some banks do not offer Peer-to-Peer or ATM access to account funds. |
| Higher APYs. | Some online banks offer a very limited range of products. |
How do online banks differ from traditional banks?
Online banks that do not operate any physical branches have fewer overhead expenses and pass on the savings to their customers in the form of lower fees and, in many cases, no monthly service charges, as well as higher APYs.
How to select the best online bank?
Online banks can provide an excellent banking experience to help you reach your financial goals. It is very important to select an online bank that offers the following features:
A competitive APY
No monthly service charge, or at least one that can be waived by meeting a certain account balance
No minimum account balance requirement
A low opening deposit requirement
Online and mobile banking features to be able to easily manage your accounts 24/7
Is it safe to use an online bank?
In general, online banks are just as safe as any traditional bank. When searching for an online bank, it is important to make sure the bank is FDIC or NCUA-insured.
Frequently Asked Questions
Are online banks FDIC or NCUA insured?
How do you deposit/withdraw money into an online bank account?
Why do online banks offer accounts with little to no fees?
How do I find the best online bank?
Is it true that online banks pay more interest than traditional banks?
If my account offers a debit card, do debit card purchases count as withdrawals?
Is interest earned in my account taxable?
Terms to know
Annual Percentage Yield (APY): The total interest you receive on money in an account over the course of a year is expressed as an annual percentage yield or APY for short. The interest rate on an account is only one component of the APY, which also considers how frequently your interest compounds. The APY of an account provides a more precise estimate of how much money it will earn in a year. For example, the best business savings account we've identified from our research is yielding !TopRateBusinessSavingsAccounts!, which is a very good rate to help your money grow faster.
Minimum Required Balance: The smallest amount of money you must deposit or keep in a savings account to avoid a monthly maintenance fee.
Minimum Opening Deposit: Depending on the bank, a minimum amount may be required to be deposited into a savings account just to open the account. Most online banks with lower overhead expenses do not require this but traditional banks might.
Interest: Interest is the money you earn from depositing your cash with a bank. When you deposit money with a bank, the bank borrows it from you, since it will lend a portion of it to clients or other banks, and the money they pay you is the interest.
Compound Interest: Compound interest is the interest you earn on interest you have already been paid. This may be demonstrated using simple math: if you have $100 and it generates 5% interest every year, you will have $105 at the end of the first year. You'll have $110.25 by the end of the second year, because you earned interest on the $105, and so on and so forth.
Methodology
Our editorial staff continually updates the information contained on our website. Our editorial staff has analyzed virtually all of the banks and credit unions that it follows, and it does weekly rate analysis for more than 250 prominent banks and credit unions. These institutions were chosen because they provide competitive APYs, low fees, and other factors we find important. These banks and credit unions often provide accounts that are available nationally. All of these banks are FDIC-insured, and all of these credit unions are NCUA-insured. Choosing an FDIC-insured bank or an NCUA-backed credit union assures that your money is protected as long as it stays within insurance limits and requirements.