Best Online Banks for August 2023

Final Verdict

Some online banks are better for checking, others for savings, and others for loans or investing. The best online banks can do it all, and Ally Bank does, consistently offering some of the highest rates on completely fee-free accounts.

This, plus useful extras like the savings buckets and savings booster features, make it the best overall bank. You can use Ally Bank as a one-stop online shop for all your financial needs, whether you're looking to bank, borrow, or invest, and know you're always getting a good deal.

Compare the Best Online Banks

What Are the Pros and Cons of Online Banks?

Online banks offer both benefits and drawbacks, just like any other type of financial institution. Below are some of the top pros and cons to consider when comparing online banks to other banks and credit unions.

Online Banks vs. Traditional Banks

Traditional banks operate brick-and-mortar locations, giving customers the option to conduct their banking business in person. The biggest of these, like Chase, Bank of America, Wells Fargo, and U.S. Bank, staff and maintain hundreds of physical branches in multiple states.

Online banks, in contrast, operate primarily, or even exclusively, online. While a rare few may have some branch locations, the vast majority offer no physical branches at all, making it possible to do all of your banking without going to a bank at all.

Because online banks don't have the overhead costs of operating, maintaining, and staffing brick-and-mortar locations, online banks tend to charge fewer and lower fees (the best online banks charge no fees). They also often offer higher interest rates on your savings. That said, you won't always get the whole suite of financial services—such as mortgages, personal loans, and retirement—that you can find at traditional banks.

As you can see, for those wanting a very traditional, full-service experience from a bank, including the ability to walk in and deposit cash, a traditional bank may offer the right fit. But for those looking to maximize their financial resources by earning more on the savings and reducing what they pay in bank fees, online banks offer a strong advantage.

How Do I Choose an Online Bank?

Choosing the best online bank is all about finding the right features for your needs. Here are some considerations:

• Rates: If you're looking at checking, savings, CD, or money market accounts, getting the highest rate possible will help you make the most out of your money. Opt for banks that offer a high annual percentage yield (APY) compared to competitors.
• Monthly fees: Monthly maintenance fees are the most common, and they add up quickly. Now that there are so many free bank accounts, there's no reason to go with one that charges a monthly fee.
• ATM fees: If you're getting an account that comes with an ATM card, make sure it doesn't charge ATM fees. You might still be charged ATM fees by other institutions when using out-of-network ATMs, but the best online banks now offer ATM fee rebates as well.
• Other fees: Overdraft fees and foreign transaction fees are two other big ones to avoid. Several of the best online banks don't charge overdraft fees. You can also find checking accounts with no foreign transaction fees, which is important if you travel internationally. Be sure to read the terms and conditions.
• Minimum balance requirements: Some bank accounts require a minimum monthly balance to keep your account open, while others require one to avoid fees. The best online banks have no minimum balance requirements—that way, you never have to worry about keeping your balance at a certain number.
• Types of accounts: If you want to do all your banking in one spot, you need a bank that offers it all. While it can be a little less convenient, holding different accounts at different online banks can help you get the best deals. For example, you could open a checking account with the best online bank for checking, but keep some money in a savings account at another bank that offers a higher APY.

How to Open an Online Bank Account

One of the notable advantages of online banks is that they are generally easy to interact with from the comfort of your home. Even getting started with a new account can be done via your computer or smartphone.

To open a bank account online, simply find a button on the bank's website with a phrase like "Open an account" or "Apply now" and then follow the online instructions to provide your personal information. Besides identifying yourself and your info, you'll likely need to answer some questions about accounts and features you want (such was whether or not you'd like a debit card). You'll also be presented with a set of questions used to determine if you are who you say you are.

Once the application is completed, the last step is usually to fund the account. Sometimes a minimum initial deposit is required, other times it is not. If you opt to fund the account at the time of account opening, you're usually offered the option of transferring funds from another bank account via ACH. Only some institutions will allow you to make the initial deposit with a credit or debit card.

What is Online Banking and How Does it Work?

Online banking simply refers to using a mobile app or desktop computer to access your account and conduct transactions. Since online banks don't operate physical branches, online banking is often the only way customers can interact with their bank.

When you open a new account, you'll be prodded to set up a username and a password, allowing you, and only you, to securely enter the bank's online customer site. You'll then be able to use those login credentials to access online banking anytime you want, such as to check a balance, transfer funds, or download a statement.

Alternatives to Online Banks

An online bank can be a solid choice for many people—either as a primary banking option or as a supplement to their primary checking or savings account. But if you’re unsure whether online banks are right for you, here are a few alternatives to consider. 

• Traditional banks: Large banks sometimes have a negative reputation for a lack of individualized customer support, high fees, and lower interest rates on deposit accounts. But big national banks can offer benefits to their customers as well, such as a broad network of branch and ATM availability, top-of-the-line digital banking apps and tools, a larger offering of financial services, and even generous bank account bonuses for new customers. 
• Credit unions: Credit unions often offer their members higher annual percentage yields (APYs), lower fees, and superior customer service compared to traditional banks. Yet these member-owned financial institutions may still offer in-person banking solutions for people seeking this type of financial service. And, if you choose one insured by the National Credit Union Administration (NCUA), your deposits are federally protected in the same way that bank coverage is provided by the FDIC.
  
• Community banks: If you’re looking for a smaller bank that doesn’t have membership requirements like a credit union, a community bank might be a good fit for you. Community banks tend to offer more personalized customer service and may have more competitive interest rates. However, branch availability tends to be more limited than larger national banks. 
• Reloadable prepaid cards: A prepaid debit card is an alternative that some people may consider instead of online banks or other types of financial institutions. You can open this type of account even if you’re unable to open a traditional bank account due to ChexSystems challenges or other issues. Some prepaid cards may offer direct deposit capabilities, ATM access, cash management services, and more. Yet these types of cards may also feature significant drawbacks in the form of high fees, no credit-building potential, and no rewards-earning capability.

Methodology

To select the best online banks, Investopedia researched over 25 institutions, reviewing rates, fees, minimum balance requirements, rewards, customer service, mobile app, and types of accounts offered. These are the most important features when it comes to online banking if you want to minimize your costs, maximize your earnings, and enjoy a convenient and easy banking experience.

Online banks that charge monthly maintenance fees on checking and savings accounts were ruled out, since there are plenty of banks charging no monthly fee. Banks requiring a high minimum opening deposit or high monthly balance were also excluded. A high APY wasn't a strict requirement if the bank stood out in other ways, such as cutting out all fees. Likewise, banks requiring a minimum opening deposit were considered as long as the minimum was low and the bank offered something attractive in return, such as a high APY.