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What Are Online Banks? Learn the Pros and Cons

These banks, accessible online, tend to have higher rates and lower fees than traditional financial institutions.
June 1, 2018
Banking, Checking Accounts, Savings Accounts
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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. No physical branches means these banks can afford to offer higher rates and lower fees than traditional banks, and the best ones are just as safe as brick-and-mortar banks.

Here are the pros and cons of online banks.

Pros and cons 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 1.60%. Compare that with the 0.01% APY offered by many large traditional banks, and the national average of 0.09%. (Skip ahead to an overview of three top online savings accounts.)
  • Convenience: 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.
  • Security: Well-established online banks with up-to-standard security measures are just as safe as traditional banks. And there are measures you can take to ensure secure online banking.

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


  • 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. Check the bank’s policy if you plan to deposit cash often.


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*Effective 12/21/18; rates are variable and subject to change

Are online banks safe?

Online bank safety is a two-way street: The bank should have up-to-standard security measures in place, and customers should get in the habit of using good security practices to avoid scams and hacks.

Make sure banks are insured by the Federal Deposit Insurance Corp., and that credit unions are backed by the National Credit Union Administration. Security measures like encryption and fraud monitoring should be offered to protect consumer information. Look up your bank’s security policies to see how they keep your money safe.

Protect yourself from scammers and hackers by avoiding public Wi-Fi networks, watching out for suspicious emails or texts and keeping anti-virus software up to date.

» Want to learn more? Read up on how to boost your banking security

Is depositing cash a problem?

Depositing cash at an online bank does require a few extra steps.

How you deposit cash will depend on the institution. Options can include 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.

See details on depositing cash at an online bank.

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.