Online banks offer a variety of services through mobile and online access. Unlike traditional banks, most online banks don’t have brick-and-mortar locations. With lower overhead costs as a result of not operating brick-and-mortar bank branches, online banks can pass those savings to you in the form of higher rates for savings accounts and lower fees. Coupling that with the convenience of the internet, people are shifting toward online banks over traditional banks.
Are online banks safe?
As long as the online bank is federally insured and you take a few steps to protect your information, it’s safe to use.
The Federal Deposit Insurance Corporation insures eligible bank accounts up to $250,000 -- but only for member banks. Look for an emblem reading “FDIC insured” in the footer of the online bank’s website. You can also use the FDIC’s BankFind tool to verify if an online bank is insured.
Standard security measures used by online banks include antivirus protection, firewalls, fraud monitoring and website encryption. Most banks describe how they protect your money on their website.
Benefits of online banking
With online banking, you can access your accounts and make transactions anytime, anywhere. The process of paying bills is simple and efficient with online banking. You can connect your accounts and make transfers at the click of a button. It’s easier to categorize payments by due date, amount and type.
Online banking can help you keep better track of your money. You’ll have better access to bank records, and can sync your accounts with apps to help you budget, save and invest.
You’ll also enjoy 24/7 account access.
How do I choose an online bank?
First and foremost, the bank should be FDIC-insured, so your deposits will be protected if the bank fails. You should also make sure the online bank has competitive rates, low fees and a robust ATM network.
Many online banks have partnerships with national ATM networks, so you can use ATMs throughout the country with no ATM fee (or a reduced fee). See if the bank offers a robust mobile app, some type of customer service and helpful features like mobile check deposit, for example.
How do I open an online bank account?
To open an online bank account, you’ll need to submit some personal information, including your Social Security number, date of birth, address and contact details. You may also need to provide a copy of your driver’s license or other government-issued ID.
Sometimes, you may need to fax or email additional documents, such as a paycheck stub, bank statement or utility bill, to verify your identity. The process of opening a bank account online can take several days, but immediate access to your money will depend on which method you use to make your first deposit.
How to deposit money into an online bank account
You can deposit cash at an ATM if your bank is part of an ATM network, or you may be able to purchase a money order and mail it to your bank. The money order must be made out to the bank, not yourself. You could also use a prepaid debit card linked to your bank account.
When it comes to checks, just like at traditional banks and credit unions, a popular option is to deposit by cell phone, where you can take a picture of your check and submit it via mobile deposit. Some online banks also enable you to link your account to another account at a traditional bank or credit union. You can then create an ACH transfer to move money between banks.
The bottom line
Check for all the standard security features for onlines banks before applying for an account. While you won’t get in-person service in most cases, online banks allow for a lot of flexibility and often higher interest rates. Many institutions offer a wide variety of savings products, including traditional savings accounts, certificates of deposits and money market accounts.
Correction, 7:30 a.m. PT Jan. 25: A previous version of this story stated that online banks have lower costs and can pass savings to you in the form of higher interest rates and lower fees. In fact, online banks have lower overhead costs as a result of not having to operate brick-and-mortar bank branches, and as a result can pass those savings to you in the form of higher rates for savings accounts and lower fees. The previous version noted that you can deposit cash in an online bank via ATM if the bank is part of an ATM network, as well as via money order made out to the bank and using a prepaid debit card. The updated article adds the options of setting up an ACH transfer to move money between banks or, if you have a paper check, deposit it via your cell phone using mobile deposit.