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What Are Online Banks? Learn the Pros and Cons

Online banks tend to have higher rates and lower fees than traditional financial institutions.
June 1, 2018
Banking, Checking Accounts, Savings Accounts
What Is an Online Bank? The Pros and Cons-story.jpg
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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.

» Skip ahead to compare three of NerdWallet’s favorite online banks

Pros of online banks

lower fees and better interest rates

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.

» Cash management accounts: See our top picks for these high-APY online hybrids


Access your bank accounts and bank services wherever there’s internet — on your computer or mobile device — and around the clock.

free atm access

A good online bank will be a part of an ATM network, like Allpoint or MoneyPass, with tens of thousands of fee-free ATMs nationwide that you can locate from your phone.


Online banks with up-to-standard security measures are just as safe as traditional banks. Look for features such as encryption and fraud monitoring, and before you open an account, make sure the bank is insured by the Federal Deposit Insurance Corp.

There are also measures you can take to ensure secure online banking, including avoiding public Wi-Fi networks and keeping anti-virus software up to date.

Goldman Sachs Bank USA

at Goldman Sachs Bank USA,

Member, FDIC

Discover Bank

at Discover Bank,

Member, FDIC



Monthly fees


Bonus features

Excellent CD options

Savings APY


Monthly fee


Bonus features

Solid CD options

Savings APY


Monthly fee


Bonus features

24/7 customer service

Compare high-yield savings accounts

Cons of online banks

No in-person assistance

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.

limited checking options

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

cash can be hard to deposit

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.

Check the bank’s policy if you plan to deposit cash often, and see more details on depositing cash at an online bank.

» Ready to explore rates? Browse the best high-yield online savings accounts

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.