7 Things to Consider Before Switching to an Online Bank

1. FDIC and NCUA Insurance

Virtually all brick-and-mortar banks are members of the Federal Deposit Insurance Corp. (FDIC). When you put your money into a deposit account at one of these banks, your cash is insured for up to $250,000 per depositor, per account category. That would give you some level of protection if the bank failed. The National Credit Union Administration (NCUA) offers similar coverage for credit unions.

When researching online-only banks, you want a financial institution that’s FDIC- or NCUA-insured. Remember that virtual banks don’t have a physical location you could visit in person if the bank runs into financial problems. Insurance provides peace of mind that a large chunk of your money is safe.

2. Interest Rates

A bank account’s annual percentage yield (APY) represents how much your savings can earn in interest over the course of a year. Online banks typically offer much higher rates than traditional banks. According to the FDIC, the average rate on a traditional savings account was just 0.45% as of October 2024. As of November 2024, many large, well-known banks only pay 0.01% on savings accounts. Online banks are a different story. As of November 2024, some APYs on high-yield savings accounts are as high as 4.80%.

Interest rates on savings accounts are influenced by the federal funds rate. This is a benchmark rate that banks use to lend money to one another. When the Federal Reserve increases this rate, APYs on savings accounts and certificates of deposit (CDs) usually go up too—and vice versa.

3. Fees

Bank fees may come with the territory, even if you’re looking to transition to an online bank. Some potential fees could include:

• Monthly maintenance fees
• Overdraft fees
• Fees for using an out-of-network ATM
• Nonsufficient funds fees
• Inactivity fees

You’ll want to understand the fee structure before opening an online bank account. Also look out for minimum initial deposit requirements and account balance minimums. The good news is that online-only banks have a reputation for charging fewer fees than traditional banks. Some traditional banks charge a fee if you don’t maintain a minimum balance or make enough electronic deposits.

Learn more >> Top Fees to Be Aware of for HYSAs, CDs and MMAs

4. Free ATM Access

If you’re thinking about what to consider when switching banks, be sure to clarify your ATM access. Remember that online banks don’t have physical locations—that means you won’t see their ATMs around town. The bright spot is that lots of online banks partner with ATM networks which allow customers to make free withdrawals when they need cash. Some will even reimburse you if you’re charged an out-of-network ATM fee. ATM access is also important if you plan on making cash deposits.

5. Technology

Whether you’re at home or on the go, online banking should feel easy. When looking at an online-only bank, take a peek at their app too. Is it clean and simple to use? You should be able to:

• Manage all your accounts on one platform
• Easily transfer funds from one account to another
• Pay bills seamlessly
• Make check deposits (some banks allow you to do this by uploading photos through their app)
• Live chat with a customer service rep, or send a message if needed

6. Customer Service

Poor customer service could be a deal-breaker when working with an online bank. Without a brick-and-mortar location to visit, you could be left high and dry if you have an issue. It’s wise to research customer service reviews before choosing an online-only bank. Here are some important questions to ask:

• What are current and past customers saying about the company?
• Do they have a good reputation?
• How easy is it to contact them? Do they have 24/7 customer service?
• What’s their Better Business Bureau rating?

7. Access to the Banking Products You Need

Online banking is about more than high-yield savings accounts. Some online banks offer other financial products and services, which may include:

• Checking accounts
• Credit cards
• CDs
• Money market accounts
• Mortgages
• Investment advice and financial planning resources

Think about your financial needs and what you’re hoping to get out of your online banking experience. The right bank could provide resources that help you reach your financial goals.

Learn more >> How to Open a Bank Account Online

The Bottom Line

Is it worth switching to an online bank? Many online banks have low (or no) fees, easy-to-use apps and robust ATM networks. And chances are you can find a competitive interest rate for your cash savings. But like a traditional bank, you’ll want to do your research before making a decision. An online-only bank should meet your needs and help make your financial life easier.