Do Online Banks Offer Better Rates?

Quick Answer

Thanks to less overhead and staffing expenses overall, online banks can generally offer better rates and next to nothing in fees.

Man and woman couple seated on sofa looking up bank rates on tablet device.

One of the main selling points of online banks is that they tend to offer better rates, higher yields and lower fees. Online-only banks have advantages over traditional banks in other ways, as well. But they can't provide the same personal service as banks with physical branches you can visit to do things like withdraw money, ask about a loan or handle other business.

If you're considering switching to an online bank, it's important to weigh these perks against the downsides. Is an online bank right for you? Let's find out.

Why Online Banks Can Offer Higher Rates

Although reasons vary why people choose an online bank, higher rates and fewer fees likely top the list. Online-only banks often offer these higher rates to attract—and keep—customers. After all, getting more bang for your buck can be a great selling point.

Since online banks don't have to spend money to maintain and staff physical branches, they have much lower overhead than brick-and-mortar banks. This allows online banks the freedom to pass along the savings or special promotions to the customer in the form of higher annual percentage yields (APYs) on savings accounts and some interest-earning checking accounts. The higher your APY, the faster your money will grow.

Plus, as long as your online bank is a member of the National Credit Union Association (NCUA) or the Federal Deposit Insurance Corporation (FDIC), your money (up to federal limits) is safe.

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Other Benefits of Online Banks

Besides the ability to offer better rates and no or low fees, online banks have many other benefits, including:

  • You can view up-to-date information on your account balance 24/7. Online banking gives you access to your accounts every day of the year at any hour of the day.
  • Banking online is convenient. You can access your online accounts from the convenience of your home via your computer or mobile device.
  • It's easy to pay bills online. It's relatively easy to set up accounts and pay your bills online.

Drawbacks of Online Banks

While online banks definitely have their perks, there are also drawbacks to consider.

  • Lack of personal contact: This can be a downside if you want to build banking relationships that may give you a greater chance to qualify for other banking services in the future. It's difficult for online banks to offer that same personal service.
  • Limited access to cash: Unlike traditional banks with physical locations, online-only banks may limit the amount of cash you can access each day. Fees may or may not be charged for using an ATM, depending on the bank and the ATM used.
  • More complicated cash deposits: Online banks often allow you to deposit cash at an ATM, but this may be less convenient than simply handing cash over to a teller at a bank. For instance, large cash deposits may require you to purchase and mail a money order.
  • Possible internet fraud: Even if you carefully follow best practices for internet safety, you may still become a victim of banking fraud. If that's a concern, check out Experian's identity theft protection service to help you detect possible identity fraud and prevent surprises when you apply for credit or open a bank account.

The Bottom Line

Online banking has become increasingly popular, with 27% of U.S. consumers currently maintaining accounts in online-only banks, according to Even so, most traditional banks also offer many of the same banking services online. However, as the average savings account currently offers 0.17% interest, according to data from the Federal Deposit Insurance Corporation (FDIC), higher-yield accounts at online banks gain some appeal. Some online banks are showing savings account rates of 1.5%, with no monthly fees and no minimum balance.

Before you take the leap to online banking, however, make sure it's the best option for you. While online banks offer the highest APYs and next to nothing in fees, if you still crave human interaction and the convenience of cash deposits, you may want to stick with a physical bank location.