If you’ve faithfully stuck by your bank, it may be time to find a new one.
The average American has used the same primary checking account and savings account for about 17 years, according to a Bankrate survey. In that time frame, online banks have proliferated and are now among the best banking options for consumers.
With online banks more popular than ever, it’s important to understand the unique advantages that come with a bank account from a digital financial institution.
3 reasons to switch to an online bank
There are several reasons an online bank account can be a great idea. Competitive rates, fewer fees, and convenience are all reasons to consider online banking. And online banks are just as safe as brick-and-mortar banks.
1. Competitive rates
Online banks are able to pay competitive interest rates because they aren’t running a network of branches. They have much less overhead, so they’re able to pass that savings to consumers in the form of better rates.
Consider this: The national average APY on savings accounts is 0.06 percent, according to Bankrate data. Meanwhile, the top high-yield online savings accounts pay up to 0.60 percent.
Online banks typically pay much higher rates than popular brick-and-mortar banks, too. For example, Marcus currently pays 0.50 percent APY on its savings account, while Chase currently pays just 0.01 percent.
2. Fewer fees
Some brick-and-mortar banks charge fees on their accounts, and waiving them isn’t always easy. However, switching to an online bank can eliminate that problem altogether.
Many online banks offer fee-free accounts. They also don’t require a large deposit to open an account — in fact, many don’t have a deposit or minimum balance requirement at all. Here’s a sample of top-yielding online banks. Rates are accurate as of Jan. 21, 2022.
|Bank||APY||Minimum balance for APY||Monthly fee|
Online banks make managing money simple. As long as you can connect to the internet, you’ll be able to review your bank statements, pay bills and transfer funds at any time.
Some common online banking features include mobile check deposit, bank-to-bank transfers and paperless statements. Ally Bank, for example, has a “buckets” feature that lets you designate a portion of your overall savings to specific savings goals. So you may have a portion of your savings for your emergency fund bucket and another portion for an upcoming vacation.
How to open an account online
Compare multiple online banks
Compare multiple online bank accounts to evaluate APYs, fees, account features and more to find the right one for you. You may find that you’re willing to accept a slightly lower APY for a bank that offers tools that will help you save more over time. Many online banks don’t charge maintenance fees on their accounts, so you should be able to find a great option with no fees.
Bankrate offers a number of tools and resources to help you compare online banks. You can compare checking accounts, savings accounts, money market accounts and CDs on Bankrate. Additionally, we named the Best in Banking in our 2022 Bankrate Awards. Ally Bank won the award for Best Overall Bank as well as Best Online Bank. Another resource is our bank reviews. Our experts have reviewed more than a hundred banks, many of them online banks, to help you in your evaluation.
Gather the necessary documents and information
When you open your account, you will need to provide:
- Personal details, including your name and contact information
- Your driver’s license or government-issued ID
- Your social security number
- A utility bill showing your current address
See Bankrate’s savings account checklist for everything you need to open an account.
Make an initial deposit
Banks often require a minimum initial deposit in order to open your account. This amount can vary from a few dollars to $50 or more, depending on which bank you choose. Ask your bank about minimum opening deposits before picking an online bank.
Most online banks are FDIC-insured, but don’t assume every online bank is. Confirm that your deposits will be insured by the FDIC before you open the account and make a deposit.