What Are The Best Online Banks And Features to Look Out For?

Filed in Online Banking by on November 2, 2020 0 Comments

In a world where the need for cash appears to be less and less, online banking has many advantages. Since they do not need to maintain the same physical presence as traditional banks, you can be offered better rates on account and loan and lower fees.

As a small business owner busy managing just about everything, you are not alone if you feel extremely frustrated having to haul yourself to a bank branch to open a business bank account. That’s why it’s definitely worth studying how to open a business bank account online from the comfort of your office or home.

According to a recent study of digital banking by PwC, majority of banking customers today are turning to online banking. In addition, the widespread closure of physical bank branches, even temporarily, during the COVID-19 public health crisis has allowed more consumers to experience the benefits of online banking, whether through their traditional banking relationships or through an online bank.

Online banks can help you earn a high interest rate or APY (Annual Percentage Yield) and keep your fees low. They also tend to provide user-friendly apps and tools that make it easy to manage your finances.

Whether you are looking for a single online bank to meet your needs or just want to open a high yield savings account, you have plenty of options. We’ve identified some of the best online banks renowned for keeping costs low while still insuring your deposits within federal limits.

The Best Online Banks

Ally Bank: Best Overall

When choosing an online bank, there are numerous excellent choices. Ally Bank stands out with a broad lineup of offerings, competitive rates, and high scores on banking surveys such as the J.D. Power 2019 Direct Banking Satisfaction Study.

If you want interest earnings, it’s easy to open an interest checking account, high-yield savings account, a money market account, or CDs at Ally—and there’s no minimum required. The rates might not be the highest online, but they’re consistently competitive.

Ally Bank accounts charge no monthly fees, and transactions at Allpoint ATMs in the U.S. are also free. You can open online savings accounts, interest-bearing checking accounts, CDs, money market accounts, IRAs, or use any combination of those services for one-stop shopping.

Ally Bank’s CDs are known for being flexible and have competitive rates. For example, the Raise Your Rate CD gives you the chance to increase your rate once during your term if Ally’s rates go up, so you won’t miss out on earning more while your money is tied up. Ally also offers ways to invest and potentially grow your money through ETFs, mutual funds, bonds, and options.

Discover Bank: Runner-Up

Discover Bank is another option for one-stop shopping with an online bank. Like Ally, Discover offers checking, savings, money market, CD accounts, and more, all with no monthly management fees. For starters, Discover’s Cashback Debit account provides rare cash back rewards in a checking account. You can earn 1% cash back on up to $3,000 of qualifying monthly debit card purchases.

Discover does have minimum balance requirements though, such as a $2,500 minimum to open a CD. The Discover Money Market offers a lower interest rate than Ally Bank’s money market (as of November 9, 2020), but that account also requires a minimum deposit of at least $2,500 to open.

Charles Schwab Bank: Best for Frequent Travelers

Charles Schwab Bank earned high marks on the J.D. Power 2019 Direct Banking Satisfaction Study, and it may be especially appealing for global travelers. Schwab Bank’s checking account is interest-bearing, offers unlimited ATM rebates within the U.S. and abroad, and has no foreign transaction fee when using other currencies.

Otherwise, Schwab Bank’s online offerings are fairly standard. The checking account has no monthly fee and no minimum balance requirement. The same is true of the savings account, though the interest rate is unimpressive for an online bank. The main draw to Schwab Bank probably isn’t the interest you earn, though—it’s the advantages you get while traveling outside the U.S. with the Schwab debit card. So if you’re a traveler, it’s wise to consider Charles Schwab Bank.

Alliant Credit Union: Best for Students

Alliant Credit Union has several accounts geared toward those under age 18, and adults can continue using Alliant’s offerings later in life. For minors, a parent, grandparent, or guardian must be a joint owner on the account, and the adult can monitor account activity.

  • The Kids Savings Account pays an attractive rate on savings account balances. There’s a $5 minimum deposit required to open, but Alliant will pay it for you. Plus, there are no monthly fees.
  • If you want to provide more autonomy, the Teen Checking Account is available to those between the ages of 13 and 17, with no monthly fees or minimum balance requirements. Once children reach age 18, they can convert to a standard checking account at Alliant, which also keeps fees to a minimum.

Credit unions require customers to qualify by meeting specific criteria, but it’s easy to meet the requirements at Alliant. Anyone can become eligible by joining Foster Care to Success, which provides resources for foster children throughout the U.S. The membership fee is $5, but Alliant covers that cost. So if you want to get your child started with a savings account or need to teach your teen a little more about their personal finances, Alliant may be right for you.

First Foundation Bank: Best for a High Rate on Savings

If you value high rates on savings accounts, First Foundation bank pays 0.75% APY in the Online Savings account. This is one of the higher rates currently available, and you can get that rate with a $1,000 initial deposit.

To earn a rate this high, other banks require you to deposit substantially more or meet other cumbersome requirements. First Foundation even allows you to withdraw funds without losing access to the rate or facing monthly maintenance charges.

nbkc Bank: Best for Interest Checking

Online banks often pay high interest rates, and that applies to checking accounts as well as savings accounts. nbkc Bank pays 0.65% APY on your checking account with no monthly fees and a $5 minimum to open the account. This isn’t a rewards checking account that requires you to use your debit card numerous times every month—you simply qualify for the rate regardless of your activity.

nbkc also has relatively low fees. There are no overdraft or insufficient funds charges, and you get up to $12 per month in ATM fee rebates. Although nbkc technically has a few branches in the Kansas City area (both in Kansas and Missouri), it calls itself an online bank and the offerings are consistent with other online banks. The checking account has critical features like free online bill pay, mobile check deposit, a free book of checks, a Mastercard debit card, and fee-free access to over 32,000 MoneyPass ATMs in the U.S. and Puerto Rico.

Capital One: Best Mobile App

An online bank’s mobile app is especially important given that you often have to handle service requests and transactions yourself. Capital One received the highest score across all online-only banks in J.D. Power’s 2019 U.S. Direct Banking Satisfaction Study, so picky customers may appreciate working with Capital One. With the app, you can handle essential tasks like mobile check deposit and payments. You can also lock your debit card temporarily, view free credit scores, and more.

Capital One’s online banking products include high-yield savings accounts, checking accounts, and more. Online savings and checking accounts have no monthly fees and no minimum deposit required to open an account. Parents can also open accounts for minors, allowing them to handle and learn about money while an adult oversees the account.

Simple: Best for Managing a Budget

If you want help managing your finances, Simple can help. This online institution automatically tracks your spending and helps you understand where your money goes. There’s no need to sign up for third-party apps, link accounts, and deal with dropped connections—robust budgeting tools are already in your account. Note though that Simple actually isn’t a bank, but accounts are FDIC insured through its partnership with BBVA.

With Simple, you can specify monthly recurring bills as well as goals you want to save for. After accounting for those needs, Simple predicts how much you can spend without jeopardizing those goals. Speaking of goals, you can set aside cash in a dedicated account (separate from your everyday spending account) and earn a competitive rate of interest on your money while the funds build up.

There are no minimum deposit requirements or monthly fees at Simple, and other charges are relatively minimal. So if you’re looking for a little help in managing your money, Simple may be the way to go.

How to Choose the Best Online Bank(s)?

When it comes to choosing an online bank, there are a few things to consider:

  • Fees: Choose a bank account that will charge you no monthly fees. This might depend on your behavior—maintaining a minimum balance, for instance, or linking the account to another account—but you can often avoid fees with the right bank.
  • Read the fine print: There are a variety of fees banks charge other than monthly fees, so make sure you understand what those are. Just because it’s an online-only bank doesn’t mean there aren’t rules to be followed.
  • Earn some interest: Online banks tend to pay higher rates, so do some comparison shopping to get the best rate you can. The top online savings accounts currently are paying close to 1.00% APY, compared to a national average savings account rate of 0.05% as of the week of September 14, 2020.
  • Check out the website and app: With an online bank, your primary interactions will take place via the bank’s website and its mobile app. Make sure you understand the available account management features. Both the App Store and Google Play provide reviews of the mobile apps for more insights.
  • Make sure you’re protected: Be certain that the bank is FDIC insured, which means that your deposits are insured, in the event of a bank failure, for up to $250,000 per account holder, for each account ownership category.

Frequently Asked Questions (FAQs)

What is an online bank?

Online banks are banks that operate exclusively online. They have no physical branches. This distinction may seem insignificant, as most banks offer some form of online banking. For consumers, however, the difference between an online bank and a bank with branches is significant. Online-only banks do not incur the costs to open and operate a network of branches. As a result, they tend to offer higher rates on deposit accounts and lower fees.

Are online banks safe?

Simply, yes. FDIC insurance is the same for online banks and traditional branch-based banking. It’s also the same whether you open an account online or in person for those banks that have physical locations. To ensure you are working with a legitimate financial institution, it’s best to check if it is FDIC insured. In many ways, online accounts are safer than traditional bank accounts due to online statements and a focus on digital transactions instead of paper checks. This helps to avoid fraud that many thieves take advantage of.

How do I access money in an online account?

There may be several ways to spend your money, but the details vary from bank to bank. For example, you might receive an ATM card you can use to withdraw cash or make purchases. Some banks also provide checking accounts, which enable you to write checks, spend with a debit card, or pay bills through online bill pay.

At most online banks, you establish an electronic link to an external account, and you can transfer funds into and out of the online bank on demand. That external account might be your checking account at a brick-and-mortar bank or credit union.

We hope you find this information useful.

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