Pros and Cons of Online Banks

In less than two decades, online banks have completely upended the way we manage our money, and more people are flocking to them all the time. But for those of us who are used to keeping our savings in the bank down the road, the idea of banking exclusively online can be quite an adjustment. Here’s a look at some of the pros and cons of online banks to help you decide if it’s right for you.

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Pros of online banks

Online banks have become increasingly popular, and there are lots of reasons to like them. Here are some of the best.

Fewer fees

Brick-and-mortar banks have huge branch networks to maintain and that costs a lot of money. To cover these costs, they charge customers maintenance fees on their accounts. Since online banks don’t have branches, they don’t have this problem and often charge lower fees or none at all. You’ll almost never see a maintenance fee on an online savings account or checking account.

Online banks have done away with a lot of other common fees too. Many don’t charge you if you use another bank’s ATMs and some even reimburse you if the ATM owner charges you a fee. A few online banks are even ditching overdraft fees, which is huge for those who don’t keep a lot of money in their accounts.

Higher APYs

Online banks are also able to offer more competitive annual percentage yields (APYs) on deposit accounts than their brick-and-mortar competitors. This is another perk of not having to maintain a costly branch network.

While a typical brick-and-mortar savings account might only give you a 0.01% APY — which translates to a $1 gain every year if you have $10,000 in the bank — the best online savings accounts offer APYs around 0.50% right now. That means you’d earn about $50 per year on a $10,000 deposit. Online banks also have high APYs onĀ certificates of deposit (CDs). And you’re more likely to find interest-bearing checking accounts online than you are with a brick-and-mortar bank. This higher earning potential coupled with the lack of fees could add up to a lot more money in your pocket.

Easy to open

Online banks enable you to open an account on your own at any time. You don’t have to wait until business hours and you don’t have to head down to a local branch and make an appointment with your banker. If you decide you want to open a checking account online at 3 a.m. on Christmas morning, no one’s going to stop you.

You will need a few pieces of personal information, like your name, address, Social Security number, and date of birth. Some banks may also require you to deposit some money right away. But others enable you to open an account without funding it immediately as long as you do so within a few weeks.

Great online and mobile banking tools

Since online banks operate entirely online, it’s especially important their online banking portals and mobile apps are up to scratch. They usually put quite a bit of effort into ensuring everything runs smoothly and is easy to use.

Most online banks’ mobile apps enable you to quickly view your balance, transfer funds between accounts, remotely deposit checks, pay bills, and sometimes even send money directly to other people.

An increasing number of online banks are also offering budgeting tools. This can include automated savings tools that transfer a set amount of money to your savings on a schedule or that round up every purchase and deposit the change in savings. You don’t see these tools as often with brick-and-mortar banks.


Online banks are backed by the same Federal Deposit Insurance Corporation (FDIC) insurance as brick-and-mortar banks. This protects your money up to $250,000 per account per bank against bank failure. It’s unlikely you’ll ever need to use this, but it’s a crucial protection you don’t want to be without.

Online banks also use strong encryption on their websites to help keep your financial data safe. This is identical to what traditional banks use for their customers’ online accounts.

Cons of online banks

While online banks have a lot going for them, there are a few drawbacks you should be aware of before opening an account with one.

No branches

Not everyone will miss heading down to their local bank branch, but there are times when it’s nice to have the option to do so. With an online bank, you have to be pretty comfortable managing your money online or it’s not going to be a good fit for you. If you don’t know your way around the internet or a smartphone, you’re better off sticking with a local institution rather than digital banking.

Limited deposit and withdrawal options

Most online banks enable you to direct deposit and electronically transfer funds, and most include debit cards and check-writing capabilities. The biggest issue with online banks is cash access.

Depositing cash is challenging when a bank doesn’t have any physical branches. Many online banks have at least some deposit-taking ATMs, but if you don’t have one of these nearby, you might be out of luck. That’s why some people choose to maintain at least a checking account at a brick-and-mortar bank they can transfer funds to as needed.

Withdrawing cash usually isn’t too hard since most banks have large, nationwide ATM networks. But if you don’t have any close by, you could face fees to use an out-of-network ATM. And if you only have a savings account, you may need a brick-and-mortar checking account to access these funds.

Customer service

Most consumers agree that brick-and-mortar banks still hold the edge in customer service, especially if you’re talking about smaller, regional banks where you can really develop a personal relationship with your banker. That’s not going to happen with an online bank.

But there are still ways to get live support if you need it. Most have phone support during business hours and some offer live chat or social media assistance as well. For most people, that’s fine since they rarely talk to their banker at all. But if being able to get personalized help when you need it is important to you, a brick-and-mortar bank might be the better choice.

Less account variety

Brick-and-mortar banks usually offer a variety of checking and savings accounts, plus CDs, money market accounts, loans, and sometimes investment services. This makes it easy to manage your money all in one place.

Most internet banks don’t have quite as many options. Savings accounts and CDs are most popular, and most have a checking account too. There are a few online banks that can rival their brick-and-mortar competitors in terms of product offerings, but many others aren’t there yet.

This will likely change over time as online banks become more mainstream. But if it’s important to you to stick with a single bank, make sure you choose one that offers all the banking services you’re interested in.

Is an online bank right for me?

Only you can decide whether an online bank is the right option for you. Reviewing the pros and cons of online banks should give you some idea of which way you’re leaning, but don’t feel like you have to pick one or the other.

You could open an online savings account to capitalize on its higher APYs and keep everything else at your local bank if you’re more comfortable that way. Or you could switch everything over to an online bank but keep a checking account at your brick-and-mortar bank if you want easy access to your cash.

Go with what makes the most sense for you right now and feel free to adapt your banking strategy as your needs change over time.

Steven Forter

Steven Forter

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