The short version
Key takeaways
- Online banks save on branches, which is why they often pay higher savings rates and charge fewer fees.
- The trade-offs are cash deposits, in-person help and some services like cashier's checks.
- A legitimate online bank is FDIC-insured — or, for fintech apps, partners with an insured bank. Verify it yourself.
- Many people use both: a local bank or credit union for cash and checking, an online bank for high-yield savings.
A decade ago, choosing a bank mostly meant choosing which branch was closest. Today, some of the most competitive accounts in the country come from banks with no branches at all. Online banks have changed what people expect from a checking or savings account — but they aren't the right fit for everyone.
Why online banks can pay more
Running a branch network is expensive: real estate, staff, security, cash handling. Online banks skip most of that. They often pass the savings on to customers through:
- Higher interest rates, especially on savings accounts and CDs
- Fewer fees, such as no monthly maintenance fees or minimum balances
- Fee-free ATM access through large shared networks, or ATM fee reimbursements
Traditional banks, in turn, offer things online banks can't easily match — mostly anything that happens in person.
Side by side
| Online bank | Traditional bank | |
|---|---|---|
| Savings rates | Often higher | Often lower on standard savings |
| Monthly fees | Frequently none | Common, but often waivable |
| Branches | None | Yes |
| Cash deposits | Limited or not available | Easy at branches and ATMs |
| ATM access | Partner networks or reimbursements | Own ATMs, plus fees elsewhere |
| Customer service | Phone, chat, app | Phone, app and in person |
| Cashier's checks, notary, safe deposit boxes | Limited or unavailable | Usually available |
| Loans and mortgages | Varies | Typically a full range |
What you give up
Before moving everything online, think about how you actually use your bank:
- Do you handle cash? If you're paid in cash, run a cash-based business or regularly deposit cash, a branch or a credit union is much more convenient.
- Do you need official checks or in-person services? Cashier's checks for a car purchase or security deposit, wire transfers, notary services and safe deposit boxes are easier with a branch.
- Do you prefer face-to-face help? If a complicated problem comes up — a fraud dispute, an estate account — some people simply want to sit down with someone.
How to confirm an online bank is safe
A legitimate bank is insured by the FDIC, which protects deposits up to $250,000 per depositor, per insured bank, for each ownership category if the bank fails. Credit unions carry the same coverage through the NCUA.
The fintech app distinction
Many popular money apps aren't banks themselves. They partner with one or more chartered banks that actually hold customer deposits. FDIC insurance protects you if the partner bank fails — but it doesn't protect you if the app company fails.
That risk became real in 2024, when the bankruptcy of Synapse, a company that connected fintech apps to partner banks, left many app customers unable to access their money for months while records were reconciled.
Who online banks suit best
A strong fit if you:
- Mostly use cards and transfers, and rarely handle cash
- Want to earn more on your emergency fund or savings goals
- Are comfortable managing everything from an app
Maybe not the best fit if you:
- Deposit cash regularly
- Need frequent cashier's checks, wires or in-person services
- Value a long-standing relationship with a local banker — for a small business loan, for example
The best of both: a hybrid setup
You don't have to choose. Many people get the advantages of each with a simple split:
- Checking at a local bank or credit union, for cash access, ATMs and in-person help when needed.
- High-yield savings at an online bank, for your emergency fund and goals.
- A linked transfer between them, so you can move money in a day or two.
The small delay in moving money from online savings back to checking is a feature, not a bug — it gives you a moment to decide whether that purchase is really an emergency.
The bottom line
Online banks trade branches for better rates and lower fees. If you don't need cash services or in-person help, they're often the better deal — just verify insurance yourself, and understand the difference between a bank and an app. For many people, the smartest answer is to use both. For a refresher on account types, see checking vs. savings accounts.
Quick answers
Frequently asked questions
Are online banks safe?
An online bank that holds a bank charter and is FDIC-insured offers the same deposit protection as a traditional bank — up to $250,000 per depositor, per bank, per ownership category. Check the FDIC's BankFind tool to confirm.
How do I deposit cash into an online bank?
Options vary. Some online banks accept cash at partner ATMs or retail locations, sometimes for a fee. Others don't accept cash at all, so you'd deposit it at another bank and transfer it.
Is a fintech app the same as an online bank?
Not always. Many finance apps aren't banks themselves — they partner with a chartered bank that holds your money. Insurance coverage can then depend on the bank and on accurate record-keeping between the app and the bank.