What are online banks

What are online banks?

Online banks are also known as e-banks, web banks, electronic banks, or, in the US, direct banks. These institutions primarily or solely operate online, utilizing websites, mobile apps, and digital channels instead of physical branches.

Financial institutions provide digital experiences via mobile apps for seamless online account access and transaction execution. Online banks differ from these in that they do not have physical branches. 

Capital One 360 runs a hybrid structure with a handful of physical offices and an imposing digital structure. It is, in a real sense, regarded as an online bank. This hybrid structure gives a great impression to those who want the low transaction rates that come with online banking and the confident assurance that comes with traditional brick-and-mortar banks

A brief history of online banks

On October 1, 1989, First Direct began offering 24-hour telephone banking in the United Kingdom. That decision paved the way for the introduction of online banking, which started in the early 1990s with the commercialisation of the Internet when computers became more prominent.

The first online (direct) Bank in the US was Security First Network Bank (SFNB), established in 1995 and pioneered the insurance of direct banks by the Federal Deposit Insurance Corporation (FDIC). This Bank proved that online banking was a move in the right direction despite its inability to close its initial year in profit.   

As internet banking grew, so did the willingness of customers to use the Internet for banking. The FDIC’s banking report shows that at least 60% of bank users do at least one or more forms of banking activity online. This statistic is also responsible for the fast-rising growth of exclusive online banks.  

Notable features of Online banks

Like traditional banks, online banks cater to all the services most bank users need. These include account opening, savings, fund transfers, and bill payments. Some online banks can offer savings even in the absence of physical offices because of ATM networks where customers can deposit and withdraw money with no or very minimal charges. 

The complete digital structure adopted by most online banks is responsible for lower operational costs because they do not have to pay rent, buy many buildings, or worry about high maintenance costs. 

Below are a few notable features of online banks:

  • 24/7 Access

Traditional banks have designated working hours before and after which they do not attend to more customers. The case is different with online banks, which offer a 24-hour service accessible anywhere as long as access to a broadband network exists.

  • Attractive Interest Rates

Are you looking for the best CD rates? Then, an online bank is one of your best options. Online banks are likelier to give the highest annual percentage yield (APY).

A certificate of deposit (CD) allows customers to save for a set amount of time and earn interest. CDs differ from savings accounts because you can only touch the money at the end of the term, or you’ll have to pay fees or lose interest.

  • A small deposit is required to open an account

Most internet banks don’t make you keep a minimum balance like most traditional banks do. You usually only need a small amount of money to open an account with them, or nothing at all. 

  • Competitive incentives

Traditional banks entice customers with attractive interest rates and incentives like referral bonuses and cashback rewards on transactions.

  • Zero charges on ATM withdrawals

Online banks tend to operate fee-free ATM transactions, and even when they do not, they tend to offer a certain number of free transactions during the day. 

  • Better Online Experiences

Because online banks operate exclusively or primarily online, they are prone to investing mainly in this specialisation. A 2018 Bain and Company survey reveals traditional banks’ lag in crucial customer-centric areas compared to online banks.

Drawbacks of Online Banks

  • The first drawback of Online banks is their limitations regarding deposits and withdrawals. Even though some online banks provide ATMs for making deposits and withdrawals, others still need to provide that opportunity. Thus, for many, using an online bank entails maintaining an account with a traditional bank as well.

  • Secondly, most customers, especially those of older generations, do not find the idea of not operating physical branches very comfortable, especially with the constant financial frauds going on worldwide. 

  • Thirdly, Online banks tend to offer limited services compared to traditional banks. Some will offer only a checking account, a CD account or a savings account. Prominent traditional banks often provide a full range of other products besides operating a bank account.

Reputable Online Banks 

List of reliable online banks with high APYs, low fees, and reasonable standards for your banking needs.

  • Quontic Bank

The top US online bank Quontic Bank offers cheap costs, high APYs, and incentives. The Bank provides high-interest savings, Yield Savings, money market accounts, CDs, and a Cash Reward savings account that pays up to 1.00% cash back on debit card purchases. 

Quontic  online bank

Quontic offers 24/7 online banking, a smartphone app, live chat, email, and phone support from 90,000+ surcharge-free ATMs nationwide.

  • Discover Bank

Discover Bank is a renowned online bank with no monthly maintenance, inadequate funds, or out-of-network ATM fees. The Bank provides cutting-edge lists of products to meet your needs. Featuring high-APY investment and incentive checking accounts. 

Discover Online Banking

Customers may get one per cent of their cash back on transactions made with debit cards. Thanks to the bank for providing access to an extensive ATM network. The Bank’s mobile banking application enjoys good customer reviews on both Apple’s App Store and Google Play. Discover Bank seals it with outstanding 24/7 customer assistance.

  • Axos Bank

With its expansive network of 91,000 ATMs and limitless domestic ATM charge compensation, Axos Bank is listed among the best options for online banking in the United States. 

Customers can access four fee-free checking accounts, including CashBack Checking and Rewards Checking. These provide competitive annual percentage yields (APYs) and have minimal minimum deposit requirements. 

Axos Online Banking

Axos also offers a live chat facility during regular business hours and provides customer care over the phone and through encrypted online messaging around the clock. The Bank’s mobile banking application is well-praised. It enables customers to take care of fundamental financial tasks while on the go. 

  • Ally Bank

Ally Bank is recognised as one of the best online banks due to its low minimum deposit requirements, attractive interest rates, and innovative online savings options. She provides high annual percentage yield (APY), banking and savings products with minimal maintenance fees and refunds for out-of-network ATM costs. Ally also has a vast ATM network. 

Customers can set ten savings goals, use round-ups for extra cash, and use the “surprise savings” tool for automatic savings. 

The customer portal provides access to all of these features. Additionally, the Bank offers client care via phone, live chat, email, and traditional mail around the clock. The mobile software developed by Ally, which is compatible with iOS and Android, has received excellent ratings in both the Apple Software Store and Google Play.

  • Capital One 360

Capital One 360, with its innovative combination of a free online bank and a traditional bank, is a top selection for anyone looking for the finest online banks. It has full-service offices in various states, Capital One Cafés, and a digital banking platform accessible 24/7. 

Capital One does not impose a minimum deposit or balance on its banking products. The Bank’s mobile app and Eno, the Bank’s digital assistant, allow customers to access their accounts whenever they choose. 

Capital One Cafés are like a financial centre wrapped in a coffee shop, providing services including trained financial counsellors, educational seminars, and help establishing and maintaining accounts. Suppose a Capital One Café isn’t convenient for you. In that case, full-service Capital One locations are available in several states, which is not a benefit you get from most Internet banks.