Should I Switch to an Online Bank?

Pros and Cons of Using an Online Only Bank

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If you rarely need to make transactions at a physical bank, you may want to consider the benefits that an online bank can offer you.

Online banks can offer higher interest rates on savings accounts and lower bank fees because the operating costs are lower without physical locations. If you move frequently, use direct deposit and online bill pay, or prefer to use web services for most of your banking, you may find that an online bank is a better fit for your lifestyle.

Before you switch, learn about the pros and cons of using an online-only bank.

01 of 04

When to Have an Online Bank as Your Only Bank

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Most online banks do not offer as wide a variety of accounts as in-person banks. Some only offer savings products. Other banks may offer more services, such as:

If you can find an online bank that offers everything you need, you can switch all of your accounts over.

You will also need to ensure that you have an easy way to make deposits and withdraw cash. Look for an online-only bank that offer online deposits and reimburses ATM fees in order to make accessing your money simple.


If you think you may also need some in person services, or more investing and saving options, you can choose to divide your accounts between online and in-person banks.

02 of 04

Advantages of an Online Bank

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Online banks often offer higher interest rates on your savings products and high-interest checking accounts. Many also offer lower fees than brick and mortar banks.

They can offer these benefits because their operational costs are lower. This makes them a smart place to stash savings such as an emergency fund.


Many online banks are connected to other lending institutions because they are required to have a set percentage of the money they have loaned out in accounts at the bank.

Another advantage of using an online bank is that you do not need to worry about finding a new bank when you move. Since you do not visit the branch in person, you can keep the same account no matter where you go. 

Some online banks may offer additional rewards that you cannot find at your local bank. There may be cashback earnings for spending in specific categories or a bonus if you open an account with them.

03 of 04

Disadvantages of an Online Bank

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When you are looking at an online bank, you must find an online bank that is guaranteed by the FDIC. Then you need to work to keep your deposit amounts below the limit that the FDIC guarantees.


FDIC insurance covers up to $250,000 per account. If you have more than this amount in a checking or savings account, you will want to move the additional balance to a new account so your money stays protected.

If you choose a bank without this guarantee, you run the risk of losing the money if the bank goes out of business.

If you use only online banks, you may face difficulties with cashing checks that you receive from others. You will likely need to deposit the check in your account, then wait until your funds are available before withdrawing the amount in cash from an ATM.

If you make regular cash deposits or daily deposits, you will be better off choosing a local bank. Most online-only banks will not allow you to mail a large amount of cash as a deposit and will require you to change the cash to a check.

Companies opening business accounts may have limited options at online-only banks. If you are opening a business account, you may have more success at a local bank, where you can work directly with management.

04 of 04

How to Open an Account With an Online Bank

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If you decide an online-only bank is the right option for you, it's easy to open an account.

You will need:

  • Your social security number
  • An initial deposit transferred from an account you own
  • An Internet connection

Once you have verified that the bank is FDIC insured, you can use the bank's website to open a new account. Each bank may have slightly different guidelines for the account, so be sure to read the product disclosure statement. 

If you are transferring money between accounts, it may take a few days for your new account to be confirmed and usable. You may have a slight lag when you transfer the money back and forth in the future, as well.

This delay is because electronic transfers can still take a day or two to completely clear. You may also be able to open the account over the phone, depending on the bank that you choose.


Be sure to confirm that your new account is open before you begin the process of switching banks or closing your current bank account.

If you have any questions or difficulty opening your account, reputable online banks will have a customer service department that you can call. Many will also have an online chat feature for immediate help.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Federal Deposit Insurance Corporation. "Deposit Insurance."

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