Forget Your Local Bank: Here's Why Online Banks Are Better

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Brick-and-mortar banking used to be the standard -- for a long time, it was the only option for a savings or checking account . But online banks aren't just an alternative place to stash your cash -- they can also be a valuable tool for your finances.

Here are a few reasons why you might want to consider using an online-only bank instead of your local bank.

Fewer fees

Online banks don't have to deal with costs like renting multiple physical locations or building branches, so they can afford to provide their services with fewer fees. For example, you may find many online banks that don't charge a monthly maintenance fee, while traditional banks may have to (or choose to) use fees as a way to cover those overhead costs.

While there are traditional banks that do offer fee-free bank accounts, your options may be more limited. You should compare those accounts against those from online banks to ensure that you're getting not just a free bank account but additional perks that can make banking there worthwhile.

Better rates

Online banks can also offer better interest rates on many products, ranging from checking and savings accounts to CDs to loans. Over the course of your banking relationship, that can add up to significantly more money in your bank account.

Let's say a traditional bank is offering a savings account with a 0.36% APY -- the national average as of July of 2024, based on data from the St. Louis Fed. If you have $10,000 in that account, you could earn $36 over the course of the first year, and $36.13 the next year.

But if you go with an online bank offering a 5% rate, you could earn $500 the first year, and $525 the next. And over a 10-year period, that difference would only grow.

You should note that bank APYs aren't fixed and can change over time, so returns aren't guaranteed. But since online banks tend to offer better interest rates overall, you'd still stand to be better off with one for these types of accounts.

You can do everything online

Having a bank that exclusively caters to online banking options means that your user experience isn't an afterthought -- it's the entire point. And if you've ever felt the (primarily millennial) pain of having to make a phone call or visit a physical bank branch because your bank account requires speaking to a human to resolve an issue, this is a convenient workaround.

This isn't to say you won't have the option to call customer support. It's just a convenience that you can choose to use.

Tip: Many online banks have partnerships with ATM providers or offer ATM rebates so you can still withdraw money or deposit checks in person, if that's something you need. Just make sure there's one (or more) in your area before signing up.

Where you bank shouldn't be a foregone conclusion just because you opened the account years ago. And given the perks, it makes sense to at least start moving toward an online bank if you want to make the most of your bank accounts.

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