How We Picked

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Long gone are the days when there was but a single bank in town where everyone went to store their valuables. When it comes to banking, the modern man or woman has a slew of options to choose from, besides just plunking down their cash at the nearest branch.

And many people are choosing to do away with the very idea of “going to the bank” at all, at least in the physical sense. Over the last few years, alternatives to the traditional brick-and-mortar bank branch have been opening across the world, or more accurately, across the digital world, in the form of so-called “online banks.”

Possessing just a handful of branches and operating almost entirely in the digital space, online banks have some very distinct advantages over traditional banks. To be sure, they have their drawbacks as well, but those haven’t stopped a bevy of depositors from making the switch to online banking.

How did we decide what makes a great bank? We researched around 50 Top Online Banks and their accounts for this guide.

The Best Online Bank category includes online-only banks that do not operate physical branches. The overall rank for each institution within each category was dependent on how many days in the quarter the institution's score was among the top 10.

On the surface, choosing an online bank seem simple, but there are a number of things you need to pay attention to when picking a bank:

ATMs

Traditional retail banks like Bank of America®, Wells Fargo, JP Morgan Chase, and Citigroup are the largest options by far, and it's their size that is their biggest perceived advantage. If you bank with Bank of America®, for instance, you have approximately more than 5,000 branches and 16,000 ATMs to service you.

Online banks usually lack physical ATMs, which, on the surface, seems like it can be a problem. Taking this into account though, a lot of online banks have responded by offering to cover ATM fees imposed by other banks, making their own lack of infrastructure a moot point.

For instance, Nationwide Bank or Ally Bank allows customers with checking accounts to make up to six ATM withdrawals a cycle before charging a fee.

Covering the surcharges at non-Nationwide ATMs bring their “network” of ATMs to a whopping 76,000. Online banks have a very clear advantage.

Interest Rates

When deciding between traditional or online banking, perhaps the single biggest reason to move your money into an online bank is the interest. Internet banks often pay up to 100 times higher interest than their traditional counterparts. Since online banks don’t have a physical infrastructure to support, they save a lot of money, money that’s passed down to the customers in the form of interest rates several times higher than their brick-and-mortar competitors.

For instance, Bank of America® pays out a minuscule 0.01 percent on savings accounts (while charging $5 a month unless you maintain a balance of at least $2,500).

Compared to other options, traditional retail banks pay out a very low interest rates on your money because they can. People don’t sign up with a Big Four bank because they were pulled in by that near-zero interest rate -- they do so because it’s easy. But when you consider that comparable online banks pay out exponentially higher interest on your money, traditional checking and savings accounts start to look a little less like a good idea.

Online banks have a very clear advantage again.

Customer Service

Some people are perfectly fine never going to talk to a representative in person about concerns over their account. However, for people who like to be able to talk face-to-face with an actual person, an online bank’s lack of physical branches is going to rule this out.

The fact that traditional banks still maintain physical branches gives them another distinct advantage over their online brethren: in-person customer service. This is especially true of smaller, regional bank chains which tend to have more personalized service than the aforementioned Big Four banks.

Online banks save a lot of money by excising the overhead associated with maintaining physical branches, but that doesn’t come without a price when it comes to service.

Fees

A lot of brick and mortars have the interest of their stockholders in mind, rather than the interests of their customers. One of the unfortunate ways this tends to play out is with the sometimes exorbitant fees traditional banks tend to charge their users, especially the customers who carry the lowest balances.

Free checking accounts are still around, but they are tough to find at the larger banks. When you're considering opting out of your big bank, you want to look at how much of a difference it'll make in terms of the fees before you make a move.

If you're paying a monthly service fee, for instance, you should check to see if there's any way to avoid it. You may be able to avoid the fee by setting up a recurring transfer between your checking and savings account or using the online bill pay service. You also want to consider things like overdraft fees, statement fees, and ATM charges to see how they compare to your online options.

Cash and Check Depositing

The lack of native ATMs for online banks, coupled with a lack of physical branches can make depositing checks a little more difficult than with traditional banks.

To be sure, direct depositing works the same as with a brick and mortar. But otherwise, depositing a check can require mailing it in and waiting for it to be received, processed, and clear. For people who need to have immediate access to their non-direct deposited funds, this can be an unwelcome roadblock.

However, many banks are combating this by allowing customers to deposit checks with their phones. While this is not always the case, it certainly helps mitigate that issue. The lack of the ability to make cash deposits does give traditional banks a slight edge here.

So Who's Better: Traditional or Online Banking?

When taking the advantages and disadvantages into account, online banking tends to make more sense. Not being able to make cash deposits can be an issue, but if it's not too big a concern, online banks are a better choice, thanks to ATM variety, higher interest, and lower fees.

Big banks have gotten not the best reputation over the last decade or so, as customers are increasingly facing higher fees and less-than-stellar customer service.

Online banks, by contrast, are becoming more appealing, especially among people who prefer to manage their money virtually. Switching over your accounts can be a hassle, but it's worth it if you find the right bank. If you're tired of your big bank but you're still on the fence about committing to going online-only, these four reasons can help you decide.


Moving Away From Cash

A number of online banks offer mobile deposit, which allows you to scan in checks from your smartphone. It's a hassle-free way to put money in your account without having to go to a branch. But what happens when you need to deposit cash? While there are a few online banks that allow you to make cash deposits at certain ATMs, most require you to put money in your account via direct deposit, mobile deposit, or wire transfers.

Bank Without a Branch

Taking advantage of mobile and online banking services saves time and it's become the most popular way for people to manage their accounts. If you're already doing things like checking your balances, transferring money and paying your bills on your phone or laptop, then leaving your big bank behind shouldn't be much of a stretch. The most important thing is to compare how the online bank's mobile features stack up with what you're currently getting from your big bank.

It's also a good idea to see if there are any fees involved. If the online bank you're considering offers completely free mobile services, that's another incentive to transfer your accounts.

Remember, there's no one size fits all when it comes to finding the right bank. Assess your needs and lifestyle first, and when you're ready, why not try and online-only bank?

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