What You Should Know About Online Only Banks


Online-only banks operate almost entirely digitally and have no physical branches. See if online-only banking is right for you.

Online-only banks are growing in popularity as people turn to technology for goods and services traditionally obtained from physical establishments. A 2020 digital banking survey by Chase revealed that 80% of people reported they preferred managing their money digitally. The survey also showed that 54% of consumers used digital banking tools more than they did the year before because of the pandemic.

The upward trend of digital banking is expected to continue. If you’re ready to bank differently, online-only banks could be a solution. Here’s what you should know about online-only banks, how they differ from traditional banks, and whether one is right for you.

What Is an Online-Only Bank?

Online-only banks (or digital banks) help you manage and save your money as a traditional bank would, but you complete nearly all your banking through a website, mobile app, or over the phone. There’s typically no brick-and-mortar location you can pop into for face-to-face interactions with a bank teller, representative, or manager because online-only banks don’t have branches.

Still, you’ll find many of the same services available to you, including check depositing, money transfers to internal and external accounts, electronic bill payment, debit cards, and ATM withdrawals. Other available products may include various types of CDs and retirement, savings, and money market accounts.

Digital banks may also offer other products that go beyond banking, such as mortgage loans and refinancing.

How Does an Online-Only Bank Work?

Online banks work almost the same way as traditional banks. The most significant difference is that digital banks conduct business online and have no physical branches. Customers rely heavily on desktop and mobile platforms to do their usual banking activities.

One of the few banking services customers might find themselves conducting in the real world is ATM transactions. Online banks partner with ATM networks to make cash withdrawals convenient. Some online banks even allow for cash deposits.

Let's take a look at online banking pros and cons.

Pros and Cons of Online-Only Banks


• Higher interest rates

• Lower fees

• Better user experience


• Cash deposit difficulties

• Possible ATM fees

• No personal connections

Pros Explained

Higher interest rates: No physical branch locations means lower overhead expenses for digital banks. Many pass these savings to customers via higher annual percentage yields (APYs) on checking, savings, CD, money market, and other accounts.

Lower fees: Lower overhead fees for online banks also translate into lower costs for customers. For instance, many digital banks eliminate monthly service fees and minimum balance requirements. They’re also more likely to allow funding new accounts with any dollar amount.

Better user experience: Because online banks know customers rely considerably on their digital platforms for services, online bank digital platforms tend to be more robust, full-featured, and intuitive to navigate. For those that rarely or never make a trip to the bank, online banks can provide a more satisfying user experience.

Cons Explained

Cash deposit difficulties: If you frequently receive and deposit cash, an online bank may not be as convenient if yours doesn’t accept ATM deposits. Even if it does, the ATM itself may not take cash deposits. There are workarounds, such as linking prepaid accounts to your bank account, but you may decide that’s more trouble than it’s worth.

Possible ATM fees: Most online banks waive ATM fees, especially when using one of their partner ATMs. However, there may be monthly reimbursement limits so that you can only make a certain number of fee-free withdrawals per month.

No personal connections: Local bank managers usually have some power to change your account terms if needed or reverse bank fees. So, these issues can quickly be taken care of at a branch. However, making changes to your online-only bank account might take more time and phone calls than you had hoped for.

Online-Only Banks vs. Traditional Banks

You typically won’t have to sacrifice any essential banking services when using an online bank. But there are services that brick-and-mortar banks offer that online banks don’t, such as notarization, currency exchange, and bank signature guarantees for legal and financial transactions. While you may not use these services frequently, it’s reassuring to know they’re there if you need them.

Traditional banks also typically have multi-functional ATMs that let you not only deposit and withdraw cash, but pay bills, repay loans, make statement requests, transfer funds between accounts, and more. You can also manage your money both online and at branch locations with traditional banks, giving you more options overall than online-only banks.

However, since online banks specialize in digital banking, it’s an area where they tend to do better. You’ll often find that online banks have mobile platforms with increased functionality and a more modern and practical interface.

What to Look For in an Online-Only Bank

As with traditional banks, online-only banks differ in their services and features. To make comparing and choosing an online bank that matches your needs more manageable, here are the critical points to consider:

FDIC insurance: It’s best to go with digital banks that are FDIC-insured, so each deposit account is protected up to $250,000 in case of bank failure.

Online security measures: Ensure your online transactions are secure with SSL encryption, firewalls, multi-factor authentication, and secure browsing requirements. Also, look for other safety features such as fraud alerts and locking lost cards from the app.

Fees: Compare service, NSF, wire transfer, overdraft, late payment, and minimum account balance fees. Also, consider ATM fees (and reimbursement limits) and foreign transaction fees. And see how to avoid monthly maintenance fees and how to open a bank account with no deposit.

Accessibility: How easy is it to reach customer service if you need help, and when are they available? In addition to phone support, some online banks offer support through secure chats and emails.

APRs: APRs for deposit accounts can vary significantly between banks, so check percentages.  

ATM availability: Verify how many partner ATMs are available overall and how many are near you. Also, see if the online bank and its nearest ATMs accept cash deposits.

Fringe benefits: Online banks may offer other benefits like free credit score reports, spending rewards, free checkbooks, expense trackers, and more.

Is an Online-Only Bank Right for You?

Online-only banks are best for people who don’t usually use the services offered by their local branch and who want lower fees and better interest rates on their accounts. However, if you prefer to resolve matters in person or don’t consider yourself tech-savvy, traditional banks may serve you better.

However, you don’t necessarily have to pick one over the other. If you like the idea of an online-only bank more or want to test the waters, you can have it as your secondary bank and keep a traditional bank account as your primary. Opening a new online bank account typically only takes minutes and provides 24/7 access to managing your money.

If you want to do even more with your money, you can use Monorail to save your cash and reach your financial goals. You can quickly open an account in the app and be on your way.

See what banking with Monorail looks like.

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