Advertiser Disclosure
Advertiser Disclosure: The credit card and banking offers that appear on this site are from credit card companies and banks from which receives compensation. This compensation may impact how and where products appear on this site, including, for example, the order in which they appear on category pages. does not include all banks, credit card companies or all available credit card offers, although best efforts are made to include a comprehensive list of offers regardless of compensation. Advertiser partners include American Express, Chase, U.S. Bank, and Barclaycard, among others.

Should You Choose an Online Bank? – Considerations, Pros & Cons

Online banks, also known as virtual banks, have taken off in the past few years. According to a 2020  survey by Finder, 30% of Americans either have or plan to open an account at a digital-only financial institution. Virtual banks’ smooth, simple transactions and low fees can make them a convenient place to keep your savings.

However, not everyone is jumping on the online banking bandwagon. Some people are worried their funds won’t be as secure at a bank that exists only in cyberspace.

Others find it inconvenient not to be able to deposit checks at a bank branch. And some just prefer the face-to-face service only a local bank can provide.

Some of these concerns are reasonable; others, not so much. To figure out whether an online bank is right for you, it’s important to understand all the perks virtual banking can offer, as well as its drawbacks.

Advantages of Online Banking

It’s easy to see why virtual banks are attracting so many new customers. Online banking has many benefits, including:

1. Higher Interest

Unlike regular banks, online banks like CIT Bank don’t have to spend money each month to maintain their branch buildings. They can pass on these savings to customers in the form of higher interest rates.

A 2021 report by WalletHub found that the average interest rate for a savings account at an online-only bank was 0.45% APY (Annual Percentage Yield). That’s more than three times as high as the average rate for a personal savings account at a bank.

However, the same study found that compared to branch-based checking accounts, the benefit is much smaller: These accounts offer an average interest rate of 0.25%, nearly half as much as an online savings account.

That’s probably because bank branches want to encourage more people to open checking accounts, which often come with costly banking fees.

2. Low Fees

Speaking of fees, online banks usually have fewer of those too. According to the WalletHub study, the average traditional bank charges a monthly maintenance fee of $6.44 on checking accounts that don’t pay interest, while the average service fee for online banks is $2.61.

Online banks also require a lower average balance to avoid maintenance fees, a lower amount to open an account, and lower fees for overdrafts, insufficient funds, and online bill payment.

As an example, Varo allows you to open an account with no minimum balance, they have no monthly fees, and they even give you access to your paycheck two days early.

The only fee that tends to be higher at online banks is the fee for receiving a paper statement. (However, the report also notes that many of these fees are lower still at credit unions.)

3. Better Technology

At an online bank, you must make all transactions over the Internet. That means they’re more likely than traditional banks to offer the latest features in online and mobile banking, such as mobile check deposit.

Some online banks even offer debit cards that work with mobile payment systems, such as Apple Pay.

4. Good Customer Service

Because online banks don’t have to spend money running physical branches, they can afford to spend more on customer support. Nearly all banks provide support through toll-free phone lines or online message centers, but online banks generally do it better.

In 2018, Consumer Reports found that, on average, customers at online banks were more satisfied with the service they received than branch bank customers. The only institution that fared better was credit unions, where 96% of customers said they were highly satisfied.

5. Secure Sites

Many people hesitate to use online banks because they fear Internet hackers could steal their financial data. However, according to Richard Barrington, a financial analyst interviewed by Insider, that’s just as big a risk at a traditional bank.

These days, all banks store their customer info in big data centers, so it’s just as easy to hack into a traditional account as an online one.

In addition, the leading online banks are members of the Federal Deposit Insurance Corporation (FDIC), the same as brick-and-mortar banks. That means even if funds are stolen, you’re covered for any loss up to $250,000.

6. Convenience

What most people like about online banks is the freedom to do their banking whenever and wherever they like.

Instead of driving to the bank and waiting in line for a teller, they can make transactions from a website or mobile app at any hour of the day or night. Deposits, bill payments, and transfers can all be made online anywhere you have an Internet connection.

Drawbacks of Online Banking

Although online banking offers many perks, it has its drawbacks as well. While 24/7 banking is convenient, there are still some things that are easier to do at a bank branch.

Here are a few of the disadvantages of virtual banks:

1. No Dedicated ATMs

Large traditional banks, such as Bank of America or Chase, have vast networks of ATMs all across the country. Online banks don’t have their own ATMs, but they make arrangements with ATM networks to let their customers make withdrawals with no surcharge.

For instance, Ally Bank, one of the oldest online banks, has a partnership with the AllPoint network, which operates 43,000 ATMs across the U.S. Chime*, another online bank, has a partnership with 60,000+ MoneyPass® and Visa Plus Alliance ATMs**.

However, these ATM networks aren’t always as big or widespread as the ones major banks offer. That can make it harder to access your money without paying a fee.

To get around this problem, some Internet banks pay you back a certain amount each month for ATM fees charged by other banks.

2. Harder to Make Deposits

When online banks were new, the only way to deposit a check in your account was to send it in the mail, which was a hassle. Today, the process is easier, thanks to mobile check deposit. You just snap a picture of the front and back of your check, then upload the images into your account.

However, deposits made this way aren’t subject to the same rules as other deposits when it comes to when the money must be available in your account. Some Internet banks, such as GoBank, take as long as five business days to post money from mobile deposits to your account.

Also, with many online banks, there’s no way to deposit cash into your account.

3. Fewer Services

Internet-only banks don’t always provide as wide a range of banking services as traditional banks. For instance, many online banks don’t offer home or business loans.

4. No Face-to-Face Interaction

The one thing no online bank can provide is a personal relationship with your banker. For some people, that’s a deal-breaker.

They like dealing with someone who knows them by name and can offer them personal advice. They also want to be able to meet with someone face to face if there’s ever a major problem with their accounts, such as a lost ATM deposit or a clerical error.

However, even traditional banks don’t always offer this kind of service. As banks close down more branches to cut costs, it’s becoming increasingly hard to maintain a personal relationship with one banker over time.

How to Choose an Online Bank

Let’s say you’ve looked over the lists above, and you think the pros of online banking outweigh the cons. The next step is to figure out which online bank is the best choice for you.

It’s more than just a matter of looking at which bank has the best interest rate, though that’s important too. You also need to consider how different virtual banks stack up in terms of security, access, and customer service.

It’s also worth comparing them to other banks in your area to make sure there isn’t a local bank that better fits your needs.

Compare Interest Rates

One of the biggest perks of switching to an Internet-only bank is the higher interest rates. There’s no point in making the switch unless you’re getting a rate worth switching for.

To see some of the best bank account rates available now, check out these guides:

Check Out Security

The best way to make sure money in your online bank account is safe is to confirm the bank is a member of the FDIC. This information appears under the name of each bank in the list at Bankrate. If the bank you’re interested in isn’t listed there, you can search for its name on the FDIC BankFind site.

Having an FDIC-insured account protects your cash, but it doesn’t shield your personal information. You can check your bank’s privacy policy to learn how it protects your data online.

However, it’s also essential to take steps on your own to prevent identity theft. For example:

Learn How You Can Access Your Money

There’s no point keeping your money in the bank if you can’t get it when you need it. Before you sign up with an online bank, find out how easy it will be to make deposits to, and withdrawals from, your account.

Check out the bank’s FAQ to find details like how long it takes money to hit your account after a transfer or a remote deposit.

Also, look for information about the bank’s ATM network. ATMs are the only way to withdraw money from an online account, so it’s important to make sure there are enough of them in your area. Look for ATMs close to your home, your workplace, and anywhere else you usually visit each week.

Review Customer Service Ratings

A final factor to consider is customer service. The best way to learn how banks do in this area is to check out the latest ratings for banks in Consumer Reports. In 2018, the magazine surveyed over 72,000 of its subscribers about their banks. Based on their responses, it rated nearly 90 banks on overall customer service, communication, level of customer complaints, and fees.

To view these ratings online, you need a subscription to the website. If you don’t have one, you can look up the report in the printed magazine at your local library.

Final Word

While online banks can be better than big-box banks, they’re not the only good option. Experts say it’s worth checking out other choices, like small community banks and credit unions. In some cases, their services, rates, and fees could be as good or better. Choosing a small bank could give you all the perks of online banking, plus the ability to visit a branch when you need to.

Another way to combine the advantages of both online and brick-and-mortar banking is to have two accounts, one at a virtual bank and one at a bank branch. You can transfer money easily between the two accounts without having to mess with remote check deposits or ATM fee refunds.

This arrangement can give you the best of both worlds. You can keep the bulk of your savings in a virtual bank, earning high interest with minimal fees. At the same time, you can keep enough cash for your day-to-day needs at a local bank, where it’s easier to access.

If you’re ready to open an account with an online bank, check out our guide to the best online banks to learn more about your options.

*Chime is a financial technology company, not a bank. Banking services provided by The Bancorp Bank, N.A. or Stride Bank, N.A., Members FDIC.

**Out-of-network ATM withdrawal fees may apply except at MoneyPass ATMs in a 7-Eleven, or any Allpoint or Visa Plus Alliance ATM.

Amy Livingston is a freelance writer who can actually answer yes to the question, "And from that you make a living?" She has written about personal finance and shopping strategies for a variety of publications, including,, and the Dollar Stretcher newsletter. She also maintains a personal blog, Ecofrugal Living, on ways to save money and live green at the same time.