What is Online Banking and How Does it work?
Online banking allows you to manage your bank account using a mobile app or computer. It allows you to do things like check your balance, transfer money, and pay bills without having to go to a physical bank branch. To set up online banking, you will need to create a username and password. You will then be able to log in to your account from anywhere with an internet connection.
When you log in to your online banking account, you will be able to see your account balance, recent transactions, and other account information. You can also use online banking to transfer money between your accounts, pay bills, set up alerts, and more. Online banking is a convenient and secure way to manage your finances. It is also a cost-effective way to do so, as many banks offer free online banking services.
Every online bank is different in terms of its features, benefits, and limitations. That’s why it’s important to compare several options before choosing the right one for your banking needs.
Best Online Banks
Types of Online Bank Accounts
When it comes to online banking, here are the most common types of accounts:
- Checking accounts: A checking account is one of the most common types of bank accounts. You can use it for direct deposits, withdrawals, online transfers, bill pay, and everyday expenses. These accounts often come with a debit card — either with a chip and pin or contactless technology — for in-person transactions. Checking accounts usually have lower interest rates than savings accounts.
- Savings accounts: Many online banking options also offer savings accounts, which you can link to your checking account. You can send extra money to this account, usually for the purpose of saving up money over time. Some savings accounts — called high-yield savings accounts — come with higher interest rates than others. Certain banks will limit the number of transfers you can make each month between your checking and savings accounts.
- Credit card accounts: Some online banks come with a credit card option, which has its own separate account. You’ll usually receive a physical credit card that you can use like you would any credit card. Oftentimes, you can monitor your account online, check your credit score, and make electronic payments using this account. Some credit cards even come with rewards or other perks, like cashback.
- Money market accounts: Some of the best online banking options also have money market accounts. These are interest-bearing accounts that are designed for investing purposes. They might have higher requirements or fees than other accounts.
- Certificate of deposit accounts: A CD is a type of savings account that earns interest at a fixed rate for a fixed period of time. This account typically has higher interest rates than regular savings accounts. When you open a CD, you agree to deposit a certain amount of money and leave it in the account for a specified period of time. When the CD matures, you can either withdraw the money or roll it over into a new CD.
Pros and Cons of Online Banking
Whether you’re opening your first bank account or switching from a traditional to an online account, here are the main pros and cons to consider.
| Pros |
Cons |
| Streamlined and accessible from anywhere with an internet connection, through a website or mobile app |
Usually have less hands-on support than traditional options |
| Tend to offer higher interest rates |
May be susceptible to glitches — such as in the mobile app |
| Typically have lower or fewer fees than traditional options |
Depositing cash may not be possible |
| Online institutions often have multiple types of accounts, including checking, savings, and money market accounts |
No way to visit the bank in person |
How to Choose the Right Online Bank
If you’re shopping around for the best online banking options, here are the biggest things to consider:
- Rates: Look for high annual percentage yields (APY) to maximize your earnings on checking, savings, CDs, or money market accounts.
- Monthly Fees: Avoid banks that charge unnecessary monthly maintenance fees, as many now offer free accounts.
- ATM Fees: Check for ATM fee-free options or banks that offer ATM fee rebates.
- Other Fees: Be wary of overdraft and foreign transaction fees, and carefully review the terms and conditions.
- Minimum Balance: Choose online banks with no minimum balance requirements for hassle-free banking.
- Account Types: Consider diversifying accounts across different online banks to secure the best deals for your specific needs.
- Interest Rate: The interest rate, or yield, is especially important with savings accounts or money market accounts since these accounts tend to accrue interest. The higher the rate, the more you can earn over time.
- Account types: Choosing a bank with a variety of account options — whether they’re personal or business — can be convenient. However, you might want to open accounts with more than one bank to get the best features, highest rates, and lowest fees.
- Customer support: It’s important to find one with several support options. This can include mobile support, online chat, or 24/7 phone support. The best banks will also have good customer reviews online, particularly about their overall banking experience.
How to Open an Online Bank Account
The process of opening an online bank account is straightforward. Even getting started with a new account can be done via your computer or smartphone. Here’s how to do it, and what you’ll usually need:
- Determine the type of account you need: Start by figuring out which type — or types — of accounts you need. Do you need a personal or business account? Are you looking for a high-yield savings account where your money can grow? Do you want to open a money market account? Once you know this, you can narrow down your banking options.
- Compare different banking options: Shop around and compare several digital institutions to see which one best suits your needs. Check their interest rates, notable fees, online ratings, customer service options, features, and restrictions.
- Gather your documents: You’ll typically need a few things to open an account online. This may include your government-issued photo ID, Social Security number, and an initial deposit.
- Complete an application: When you’re ready, fill out the application. This is typically done online and may require you to provide some personal identifying and contact information. You will also typically need to create an online profile to go with the account. Be prepared to verify any information upon request.
- Make a deposit and wait for approval: If a deposit is required, it might take a few business days to go through. Once it does, your account should be good to go, so you can start using it immediately. If you ordered a debit card or checks, they might take up to a couple of weeks to arrive.
Is Online Banking Right for You?
An online bank might be right for you if you are:
- Technologically savvy and want to handle your banking online or through a mobile app.
- Looking for an account with higher interest rates. Generally, online banks tend to pay higher rates than what you’d get with most traditional banks.
- Interested in working with a bank with fewer fees.
Top Online Banking Options
Here are some of the best online banking providers to choose from:
|
Online Bank
|
Number of ATMS
|
Minimum Deposit
|
Fees
|
APY (annual percentage yield)
|
|
Axos Bank
|
91,000+
|
None
|
No overdraft, ATM, or monthly fees
|
3.30%
|
|
Chase
|
15,000+
|
None
|
Waivable monthly fee
|
0.01%
|
|
Chime
|
60,000+
|
None
|
None
|
2.00%
|
|
Citibank
|
65,000+
|
None
|
Monthly maintenance service fee (waivable)
|
3.85%
|
*Rates and requirements subject to change
We value privacy
Filters
Quick and easy online process
One branch with in-person banking
No monthly/overdraft fees
