Best Online Banks

Pros

High interest rates
Online banks (or "internet banks") differ from traditional banks in that, with few exceptions, they don’t have physical branches to visit. The money they save from not having to maintain and staff locations results in higher interest rates for their customers.

Most online banks offer high-interest savings accounts with annual percentage yields (APYs) in the 1 percent to 2.5 percent range. To add some context, according to the FDIC the average APY for all banks is .09 percent. If you have $10,000 in your savings account, a 0.10 percent APY will earn you $100 over a 10 year span. Contrastingly, a 2.2 percent APY will earn you nearly $2,500 over the same time frame.

Some traditional banks will offer higher APYs as temporary promotional rates or have minimum balances for their money market accounts upward of $10,000 to qualify. Online banks have lower or no minimum balances and sometimes even offer an interest rate on your checking account, a feature very rarely seen with brick-and-mortar banks. Interest-bearing checking accounts help you earn interest on every dollar you have, without tying up your money. Online banks also offer other investment options such as certificates of deposit or money market accounts.

Low monthly fees
Due to their lower overhead costs, online banks typically have lower monthly maintenance fees than other financial institutions. Traditional monthly fees look like a $5 or $10 charge to use your account if you don’t meet certain minimums or requirements. Many online banks wave these fees altogether.

Easy to sign up
You can sign up for an online bank account from the comfort of your home. Most online banks require little paperwork. For American citizens, many require a social security number and photo of your driver’s license.

Access from anywhere
Online banks add convenience as you can completely control your money from wherever you are. Mobile banking apps help you access your funds from anywhere.

Online money transfer
Due to their design, online banks work well for wire transfer of funds, direct deposits, online bill pay, and other online transactions. Some online banks have options to use checks, though this may be more limited than traditional banks.

Credit and debit cards
Most online banks offer credit and debit card options to access your funds. Though your money is kept digitally, you won’t have any problems using it for purchases.

Cons

No physical locations
As mentioned above, most online banks exist strictly online. This creates difficulty for cash deposits and face-to-face assistance, and depending on the bank, perhaps limited ATM access as well. Some online banks have their own ATMs, while others partner with the ATMs from third-party banks, and some online banks provide no ATM access at all. In this case, bank customers could withdraw funds from another bank’s ATM and pay a withdraw fee for cash withdrawals.

Limited services
Online banking services typically include a more limited array of debt and loan services such as student loans, mortgages, business loans, etc. Online banking customers might also miss in-person services such as financial consultation, customer service, or receiving a cashier’s check. Without a physical location, safety deposit boxes also won’t be an option.

Internet problems
Though unlikely, an online bank’s website could have technical difficulties. If the site is temporarily unavailable, you wouldn’t have any access to your funds. Similarly, you need to have internet access to use an online-only bank.
Online banking is a great option for many people. Fortunately, you don’t have to use just one bank. You could use a traditional bank for your checking account and keep the rest of your money in a high-yield savings account online. A traditional bank or credit union will probably offer more conveniences for withdrawals, deposits, loans, or similar banking services, but will rarely have as good of interest rates as an online-only bank.