With more online banks available now than ever before, finding the best online bank has never been easier. In this article, we’ll explain how online banks work, whether or not they are safe, and compare how they differ from traditional banks. We’ll also explore some of the advantages and disadvantages of using online banks as well as provide information about some of their current offers and rates.
Best Online Banks
We like online banks because they offer competitive interest rates, low fees, and other options, all while making banking more convenient than it’s ever been. There are a number of different banks to choose from. I personally have accounts at Ally and Capital One 360, and also have an account at American Express National Bank - Member FDIC.
Based on my personal experience along with substantial research, here are some of the top online banks we feel stand out above the rest:
Editors Pick Best Overall
Chime is an online-only financial app that offers you several unique features. When you sign up, you’ll have access to a “spending account” (which is essentially your checking), a savings account, and a Chime Visa® Credit Card. Regarding the unique features, Chime offers something called SpotMe® – which “spots you” money if you overdraw your checking account for any reason.
In addition, you can leverage Chime’s saving round-ups, where Chime will round up your purchases to the next dollar amount and deposit the difference into your savings account. You’ll also get access to a paper checkbook, a competitive APY, and close to 60,000 fee-free ATMs nationwide.
Check out our complete review of Chime for more information.
Chime Disclosure - Chime is a financial technology company, not a bank. Banking services and debit card provided by The Bancorp Bank or Stride Bank, N.A.; Members FDIC.
1Save When I Get Paid automatically transfers 10% of your direct deposits of $500 or more from your Checking Account into your savings account.
^Round Ups automatically round up debit card purchases to the nearest dollar and transfer the round up from your Chime Checking Account to your savings account.
Chime APY Disclosure - The Annual Percentage Yield (“APY”) for the Chime Savings Account is variable and may change at any time. The disclosed APY is effective as of October 25, 2022. No minimum balance required. Must have $0.01 in savings to earn interest.
Chime ATM Disclosure - Get fee-free transactions at any Moneypass ATM in a 7-Eleven location and at any Allpoint or Visa Plus Alliance ATM. Otherwise, out-of-network ATM withdrawal fees may apply.
Citi® currently offers one of the highest APY of any savings account online that requires a $1 minimum deposit to earn interest. The Accelerate Savings account currently yields a high APY and if you’re in need of bonus cash, you’ll want to consider opening a Citi Priority Account (by 1/9/23) which offers up to a $2,000 cash bonus after meeting certain requirements.
CIT Bank –As interest rates slowly start to rise, CIT Bank is vying for the top spot. It currently offers one of the highest APYs available in its Savings Builder Account of up to 1.00%. See details here. CIT also offers great rates on their MMA and CD products.
CIT Bank. Member FDIC.
American Express National Bank – Member FDIC
American Express® High Yield Savings Account - I’ve been banking with American Express for the last few years and can vouch for their quality. Currently, the American Express Savings offers two primary products; CDs and High Yield Savings. As of 12/22/22, you can earn up to 4.25% on a CD for 5 years and you can earn 3.30% Annual Percentage Yield with the High Yield Savings Account. Both online savings and CD accounts require no minimum deposit to open.
HSBC Direct Savings - If you link your Premier checking account with a Premier Relationship savings account, you’ll score a higher APY if you meet certain criteria.
There is also no minimum deposit required to open an account.
LendingClub Bank Rewards Checking offers low minimum deposits and no minimum balance requirements. Plus, they offer unlimited cash back of 1% on signature-based purchases with your LendingClub Bank debit card. They also offer unlimited rebates for ATM fees charged by other banks. But, their APYs aren’t as competitive as some of the other online banks.
First National Bank of Omaha
FNBO Direct (First National Bank of Omaha) currently offers a competitive APY for its online savings account, with a minimum deposit of just $1. Even more impressive, it offers an interest-bearing checking account that currently pays 0.15% APY.
Discover Bank is more than just credit cards. Through Discover Bank, customers can find great rates on nearly any type of account they want – including savings, money market, CDs, and IRAs. The current APY on Discover online savings account is very competitive at 3.90% APY.
Barclays –UK banking giant Barclays offers clients in the U.S. access to online savings accounts and CDs. Online savings accounts through Barclays feature no minimum balances to open and no monthly maintenance fees.
Read more: Barclays Bank Review
Bonus: Online Banks for Small Business
Online banks aren’t just for consumers. Businesses need their own bank accounts too. This is especially true for small businesses, where the owner can be tempted to let their personal and business funds mix.
Maintaining a separate business account is important for bookkeeping, as well as maintaining business protections like the limited liability offered by an LLC.
These are some of the best online banks for small businesses.
Novo is a fintech company designed specifically for small businesses and freelancers. Novo doesn’t have a minimum deposit requirement, but they ask for a deposit of $50 to unlock all the features. There are no monthly maintenance fees or minimum balances to meet once you open the account. Novo also offers powerful online banking features, such as integrating with digital wallets, easy international transfers, and mobile deposits.
Novo customers also get valuable perks such as discounts or credits for popular services including Stripe, Google Cloud, and Salesforce.
Where Novo falls short is in offering options for businesses that do much of their business using cash or checks. Because Novo is a fintech company, you don’t have any way to deposit cash. You also don’t get a checkbook from Novo that you can use to pay vendors, forcing you to use electronic transfers to pay people.
If you do most of your work online, this won’t be a problem, but if your small business is something like a coin-operated laundry, Novo probably isn’t the right choice for you.
You can read our full review of Novo here.
Lili is a mobile bank designed specifically for freelancers. It’s a great choice for anyone who is freelancing, whether you’re just getting your business off the ground or you’ve been freelancing for years.
Lili’s checking account is nearly fee-free, with no monthly fees or overdraft fees to worry about. You can also easily withdraw cash, fee-free, at more than 32,000 ATMs across the United States.
When it comes to helping freelancers in particular, Lili offers a few useful tools. One is the option to set money aside each time you get paid by a customer. This makes it easier to be prepared for tax season, because you don’t have an employer who sends a portion of each paycheck to the IRS.
Lili can also automatically categorize your expenses, which can help you maximize your business expense deductions when tax time comes. That can help you pay less money to the IRS and keep more in your pocket to help grow your freelancing business.
You can learn more by reading our full Lili review.
Learn More: Best Business Checking Accounts
What is an Online Bank?
It may seem odd to speak of online banks as different than traditional banks. Don't all banks offer online banking?
An online bank is a financial institution that does not have physical bank branches. All banking is done online. The advantage is that without the cost of physical locations, online banks offer higher interest rates on savings products and lower fees. And consumers have taken notice.
Although many consumers still love the idea of doing business with a traditional bank, the fact is that consumers are flocking in huge numbers to online banking options. According to the Federal Reserves Consumers and Mobile Financial Services 2015 report, 74% of banking customers reported using some type of online banking application to access their bank accounts.
So what makes online banking so attractive to banking consumers? Online banking is extremely convenient, for one. Customers of online banks are able to access their information from anywhere with an internet connection. That makes doing all, or even some, of your banking online very convenient. Even traditional banks now include an online banking component for most of their customers.
Unlike their traditional counterparts, online banks do not have physical brick-and-mortar locations. Obviously, this presents both advantages and disadvantages for online banking customers. Because banks don’t have the high overhead costs of maintaining or staffing physical locations, they are able to pass those savings along to their customers in the form of higher-yielding products.
Additionally, online banks typically are able to charge lower fees for the same reasons. However, customers who bank mostly in cash may find not having a branch location to be more trouble than it is worth. Customers who crave a personal face-to-face experience will also be disappointed.
Just as most traditional banks have the backing of the FDIC, online banks fall under their protection as well. Furthermore, many online banks offer the same banking products that you can find at traditional banks. Most online banks include checking, savings, CDs, and money market accounts. However, online debt-focused products - such as mortgages and personal loans - are rare. Although some online banks do offer IRA accounts, many do not offer any type of investing products or services.
How Online Banks Work
Due to the nature of how they work, online banks are geared toward satisfying the needs of more mobile and tech-savvy customers. Because online banks do not have physical branch locations, consumers need to make some adjustments in how they interact with their new bank.
If you already have your paycheck directly deposited into your bank account, you’ll notice little difference in depositing your monthly income. With direct deposit, online banks work the same way as traditional financial firms. However, if you receive a paper check, you’ll need to find a different way to make your deposits.
An online bank typically enables deposits in the following ways:
Mobile Deposits: Most online banks today enable customers to deposit paper checks via smartphones. The feature is as simple as snapping a picture of the front and back of the check.
Electronic Transfers: You can connect an existing bank account with an online bank. This makes it easy to transfer funds to your primary bank account. That’s what we do. We transfer funds to our online banks to take advantage of the higher yields. When we need to use the money, we then transfer it back to your brick and mortar institution.
U.S. Mail: In addition to direct deposits, customers can also mail in their paper checks. Doing so means that your check will not clear and be credited to your account for at least a few days.
Online banking customers can get access to their money in a number of different ways.
Debit Card: The easiest way to make a purchase is to use the debit card provided by your new bank. Typically, these cards will have a daily purchase limit that protects your account from unauthorized purchases.
Paper Checks: Online banks may also provide customers with access to paper checks and online bill payment systems. Customers may also transfer funds to a traditional bank, which can then be accessed at that bank’s physical location within a few days. This can typically be done without incurring any fees.
ATMs: Most online banks have agreements with ATM services that allow their customers access to cash from these machines without paying a fee. Again, ATMs may be subject to a daily withdrawal limit.
Electronic Transfers: As mentioned above, this is how we access our funds in most cases. We simply transfer the money to our primary checking account.
Is Online Banking Safe?
If you are new to online banking, you might be wondering if online banking is as safe as banking through a traditional bank. Although the act of physically handing your money to a teller may seem safer, the fact is that many traditional and online banks operate in a similar fashion.
Most online banks use the same type of security systems used in traditional banking. Furthermore, both traditional and online banks store your information on servers and databases that could potentially be vulnerable to cybercriminals. So, the perception of safety is not always the reality.
Before doing business with an online bank, make sure that they are a legitimate institution. Of course, we recommend using online banks that are insured by the FDIC. That way, your money is getting the same type of protection that it would get if you deposited it with a traditional bank (up to $250,000 in coverage).
Whether you choose to bank online or with a traditional bank, the safety of your account is really up to you. Monitor your accounts and look for any irregularities on a regular basis. With online banking, in particular, make sure that you are secure private internet connections, rather than public wireless connections where your information may be visible to other users. Most of all, be vigilant about your online banking relationship. If you see something that doesn’t look right, take action immediately.
Advantages of Online Banks
Due to the nature of online banking, there are some distinct advantages that online banks can offer over traditional banks. Here are a few:
Because online banks typically don’t have the same overhead costs as traditional banks, they are able to pass the savings on to their customers in the form of higher rates. Many banks are able to offer savings account and CD rates that are 0.5% higher (or more) than their traditional counterparts. Depending on the size of your balance, that can mean a lot of interest being put back into your pocket.
Again, because they have much smaller overhead expenses to deal with, online banks are typically able to offer lower fees than traditional banks. At most online banks, many of their account types offer zero fees.
Ease of Use
Since their entire business structure is based online, it makes sense that online banks would provide their customers with easy-to-use platforms. Additionally, most online banks now have mobile apps to help meet their customer’s banking needs even while they are on the go.
Read More: Best Mobile Banking Apps
Disadvantages of Online Banks
Of course, making the switch to online banking presents some challenges as well. Here are a few disadvantages of online banks:
No Branch Locations
Although online banks are able to keep their overhead low due to the lack of physical branch locations, it does present some issues. For online banking customers, this means that face-to-face meetings with tellers and bankers are nonexistent. Customers desiring personal interaction will not find it in an online bank.
Difficulties with Cash
Another result of not having physical branches is that online banking makes it difficult to deposit and withdraw cash. Cash deposits are not allowed, and withdrawing cash must be done at an ATM machine. While online banks have agreements with ATM companies that eliminate processing fees, cash withdrawals are subject to daily limits.
Limited Product Offerings
Most online banks are able to offer the basic accounts that customers seek - checking, savings, and money market accounts. However, few online banks provide other products - especially debt products - that can be obtained from a traditional bank. Customers typically are unable to obtain home loans, personal loans, or brokerage accounts from an online bank.
No Safety Deposit Boxes
If you are somebody who uses a safety deposit box, you’re obviously out of luck finding those with an online bank. Since there are no physical locations, online banks are clearly not able to provide this service.
How to Open an Online Bank Account
Opening an account at an online bank is pretty straightforward. Just visit the website of the online bank of your choice. Click on Open Account (or something similar). Choose the type of account you wish to open and fill out the required personal information. You can then fund the account through an online funds transfer, mailing a check, submitting an eCheck, or completing a wire transfer.
Related: How to Avoid Wire Transfer Fees
If you do not wish to open your account through the online process (and why wouldn’t you since you’re switching to online banking?), many online banks allow you to open your new account by telephone. Some also allow you to complete and mail paper forms to open your account.
List of Online Banks
Here is a list of additional online banks. Please note that, due to federal regulations, all savings and money market accounts are limited to 6 transactions per calendar month on certain types of transactions (wire transfers, phone transfers, etc.). Deposits and ATM withdrawals are not included in this number. Unless otherwise noted, there are no deposit or ATM withdrawal fees at participating machines.
Capital One 360 - Capital One 360 offers multiple online accounts, including checking, savings, CDs, business savings, and children’s accounts. Brokerage accounts, IRAs, and mortgages are also available. Checking and savings accounts include no minimum balance requirements and no monthly fees.
Bank5 Connect - Bank5 Connect is an online bank offering checking and savings accounts as well as CDs. They also offer person-to-person payments. Checking and savings accounts require a minimum balance of $10 to open and $100 to earn interest. There are no monthly maintenance fees.
Sallie Mae Bank - Student loan giant Sallie Mae has also gotten into the online banking game. Currently, they offer savings and money market accounts, CDs, and Upromise GoalSaver college fund accounts. Savings and money market accounts offer no minimum balance requirements or monthly maintenance fees.
First Internet Bank - First Internet Bank is a full-service online bank offering personal and business banking accounts, mortgages, CDs, IRAs, commercial loans, and more. They offer both free and interest-earning checking accounts, with a minimum opening deposit of $25 and $100, respectively. Interest checking accounts charge a monthly maintenance fee of $10 a month for average daily balances below $500. Free and interest-bearing savings accounts are also available, with minimum opening deposits also sitting at $25 and $100, respectively. A monthly maintenance fee of $2 will be assessed to regular savings accounts with an average daily balance of less than $1,000. Money Market accounts require a $100 deposit to open and an average daily balance of $4,000 to avoid the $5 monthly fee.
Simple Bank - Simple Bank offers an online bank account similar to a checking account. You can pay your bills through their system and use your Visa debit card to make purchases. Their Safe to Spend feature helps you keep track of both your current balance and future financial commitments (like monthly bill payments). Your funds are held through Simple Bank’s partner bank (Bankcorp Bank). Unlike most online banks, Simple Bank does not offer high-yield checking or savings rates. Thus, their current rates are nominal. So, if you are looking for high-yielding bank accounts, Simple Bank is not your best option. However, if you’re looking for an online bank with a great mobile app, online bill pay, and tools to help you budget, Simple Bank is a good option.
Nationwide Bank - Nationwide Bank is a full-service online bank offering personal and business accounts, as well as CDs, mortgage and home equity loans, car loans, IRAs, and a variety of other banking products. They offer 4 types of personal checking accounts, all requiring a minimum of $50 to open. Two of these accounts are interest-bearing, and all of them have small monthly maintenance fees that can be waived by meeting varying direct deposit or minimum balance requirements. Regular Savings accounts also require a $50 minimum opening deposit and are charged a $3 monthly fee for minimum daily balances below $300. Money Market accounts are subject to a monthly maintenance fee of $8 for minimum daily balances below $1,000. Nationwide also offers a special Holiday Club savings account, helping you plan and save for holiday shopping throughout the year. The account is free, and you’ll receive a transfer to your Nationwide checking or savings account in October of each year.
TIAA Direct Bank - TIAA Direct Bank offers checking, savings, and money market accounts as well as CDs. Borrowers can also apply for mortgages and home equity loans through this online bank. On all accounts, there are no minimum balance requirements or monthly maintenance fees. Checking and savings accounts require a $100 deposit to open, while money market accounts may be opened with a deposit of at least $2,500.
The Bottom Line
Online banks can provide customers with high-yielding accounts and CDs that traditional banks may not be able to offer. Since there are both advantages and disadvantages to banking online, be sure to weigh the pros and cons before you make a complete switch.
Related: Best Bank Referral Programs
The beauty of online banking is that you don’t have to switch entirely. You may consider keeping some accounts with a traditional bank while moving some of your money to an online bank in order to take advantage of the great rates. As always, do your research and think carefully before making any major financial decision.
Listen to our show about online banks vs traditional banks