Why Do You Need an Online-Only Bank?
The top performers in our review are Connexus Credit Union, the Gold Award winner; Capital One 360, the Silver Award winner; and Ally Bank, the Bronze Award winner. Here's more on choosing an online bank to meet your needs, along with detail on how we arrived at our rankings.
Online-only banks give you the ability to instantly check your balance, review transactions, pay bills and transfer money between accounts from your computer or smartphone. The best ones offer a range of services, including loans, free and interest-earning checking accounts, and savings solutions. Savings options include high-yield savings accounts, money market accounts and certificates of deposit (CDs). To learn more about the advantages of online banking, read our articles about online-only banks in our learning center.
Our Recommendations for Online Banks
Best Online Savings Account
One advantage of online-only banks versus their brick-and-mortar counterparts is higher interest rates. Of the 10 banks and credit unions we evaluated, Ally Bank offers one of the highest interest rates for a savings account – higher than the rates other online banks offer for money market accounts. Another plus: Ally's savings account requires no monthly fees and no minimum balance.
Our Recommendation for the Best Online Savings Account – Ally Bank
Best Bank for High-Yield Checking Account
Connexus Credit Union offers account holders several high-interest checking options, with its Xtraordinary Checking being the best. It offers the highest interest rate of any checking account we reviewed. You'll need to meet certain monthly requirements, including making a certain amount of debit transactions, having at least one direct deposit and paying one bill through the account. Even if you don't meet the requirements, you'll still earn some interest.
Our Recommendation for the Best High-Yield Checking Account – Connexus Credit Union
Best Long-Term CD
Capital One 360 has the best rates for long-term CDs of the 10 financial institutions that made our list. Its five-year CD has the highest rates compared to other online-only banks. Even a one-year CD compares well with the rates other banks offer for longer term CDs. When you deposit your funds, the interest rate is locked in. You can elect to have interest paid out monthly, annually or when the term expires.
Our Recommendation for Best Long-Term CD – Capital One 360
Best Rewards Program
Discover Bank offers a cash-back rewards program with its checking account. You earn cash back on up to 100 transactions per month (including debit purchases, bill payments and cleared checks), with the potential to get as much as $120 cash back. There's no minimum balance to be eligible for this cash-back program.
Our Recommendation for Best Rewards Program – Discover Bank's Checking Account
Bank with the Best Services
Alliant Credit Union offers the best slate of services to account holders. It offers its own nationwide ATM network with 80,000 participating surcharge-free ATMs. You can also get up to $20 worth of your ATM fees reimbursed each month. This online only bank offers mortgages, home equity loans, auto loans and credit cards.
Our Recommendation for the Bank with the Best Services – Alliant Credit Union
Online-Only Banks: What to Look For
We compared the range of services, interest rates, security, customer support and overall convenience of each online-only bank on our list. Here's more about each factor:
Online-only banks don't have the expense involved in operating and staffing branches, so they can often offer better interest rates. Because interest rates are so low at brick-and-mortar banks, this is a definite advantage of using internet-only banks. Here are a few things to look for:
- Checking accounts should be free from monthly service fees and pay interest. Additionally, the initial deposit should be low. Banks commonly offer ATM or debit cards that you can use to easily access the funds in your account, and many offer rewards checking accounts that grant you a higher interest rate on your account balance when you make a certain number of debit card transactions each month. However, many online banks require you to maintain a certain minimum balance in order to avoid fees and earn interest on your account. Ask what, if any conditions, apply.
- Savings accounts should also pay interest, be free from monthly service fees and have a low initial deposit requirement. Your money isn't as accessible in a savings account as it is in a checking account because you don't have checks or an ATM card. Also, the number of withdrawals you can make is limited to six per month, owing to Federal Regulation D. If you withdraw funds from your savings account more frequently than that, you're charged a fee for each additional withdrawal.
- Money market accounts are similar to savings accounts, including the limit of six withdrawals per month. However, you may have more accessibility to those funds because you can write checks against it or withdraw funds using an ATM card. However, you may be charged a monthly fee if your balance drops below a certain dollar amount.
- Certificates of Deposit (CDs) often offer the highest returns on deposited funds because you commit to leaving it in the bank for a set period of time, typically between three and sixty months. If you withdraw your funds before the end of the term, you incur a penalty.
You want a bank that makes it easy for you to stay on top of your finances. With just a few clicks, you should be able to check your balances, review your latest transactions and pay your bills. Here are a few features to look for:
- Mobile banking allows you to complete your most common banking tasks wherever you are, right on your phone.
- Online features, such as statements and budgeting tools, help you manage your finances and set savings goals.
- Access to a network of ATMs and reimbursement for ATM fees are important because one, it's your primary means of accessing your funds, and; two, you don't want to pay more in fees than what you earn in interest.
- The best online banks in our review offer a variety of credit options: loans for mortgages, home equity, and cars as well as credit cards, including rewards cards and student credit cards.
Security & Support
Online banks are subject to the same federal regulations as brick-and-mortar banks. Use the same discretion when considering an online-only bank that you would for a neighborhood bank. Consider these factors:
- FDIC/NCUA insured means that if the bank or credit union fails, you can recover your funds, up to $250,000.
- Two-factor authentication indicates the bank utilizes enhanced security measures to verify you are the authorized user of the account. Examples of two-factor authentication include a passcode the bank sends to your phone after you enter your username and password, and security questions you're required to answer when you set up the account. Notifications can be set up that alert you when certain activities occur on your account, such as if your ID or password is changed or if a new account is opened. You can also set up alerts for overdrafts, statement availability and payment due dates.
- Because you can't visit a branch, customer service accessibility is key. All of the online-only banks on our list have U.S.-based customer service departments and are easiest to contact via phone. Some are available 24/7 while others have extended customer service hours. For the banks and credit unions on our list, you can communicate with all of them via email and many offer live chat.
The top online banks offer a range of banking services and protect your money with the same protocols as your neighborhood bank. They also make it easy to monitor your transactions and access your money. Armed with our guide and expert reviews, you can find an online-only bank that makes managing your finances convenient and provides you with better-than-average interest rates on your checking and savings accounts.
* Rates listed are current as of December 15, 2016.