5 best online banks for your money in 2020

If you’re looking for a new bank account, you’re aware that you have a ton of choices in banks, credit unions, and other financial outlets. But are you aware that you also have a choice of online banks?

That’s right — in addition to your traditional brick and mortar banking institutions, there are virtual banks that do just about everything traditional banks can do. These online options offer deposit accounts, investment accounts, and other banking products, and there are often major perks to trading off in-person service for virtual help — and most, if not all, are FDIC-insured. RELATED: FBI warns crooks are targeting banking apps.

So, if you’re on the market for a new account, it may be worth checking out the online options and the brick and mortar banks to see which works best for you. Let’s take a look at how these banks work, what they can offer, and which ones are the best of the bunch.

How online banks work

If you’re unfamiliar with online banking, the premise is simple: Online banks operate like brick and mortar banks, offering checking, savings, and investment accounts, among other banking products, and the only difference is that there is no option for in-person banking.

While you’ve likely opened at least one checking account in person at a bank, filling out paperwork and signing it with a banker, the process for online banking is much different. Everything from account set-up to investments and deposits is done via the internet, an app, or by mailing in documents or paper checks.

To make up for the lack of in-person banking, though, most online banks will offer a ton of perks in return. The interest rates on savings, investment, and money market accounts tend to be higher through online banks, and there are often sign-up bonuses or extra earning opportunities that you may not be offered by traditional banks.

For example, Discover, a credit card giant that you’re probably familiar with, doesn’t just offer credit products. It also offers online deposit banking. The nice part about Discover’s online banking is that it offers cash back on debit card purchases made with your Discover debit card. That’s a rare perk to find in ANY bank.

But it’s hardly just Discover that offers unique online banking perks. There are tons of online banks that offer solid interest rates, top-notch apps, and even sign-up bonuses for banking with them. Let’s take a look at the 5 best online banks and how they may work for you.

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The 5 best online banks

1. Ally Bank

This fully-online bank offers solid interest-bearing checking and savings accounts and high rates on CDs, but there are a few downsides, too — including the inability to deposit cash into your Ally account.

Pros of Ally Bank

No-fee, interest-bearing checking — The interest you earn on money deposited in Ally’s interest-bearing checking has two tiers: You’ll earn a 0.10% APY rate if you have less than a $15,000 minimum daily balance and you’ll earn a 0.50% APY rate if you have a daily balance over $15,000 in your account. Both are stellar rates for APYs on checking.
No-fee, high-yield savings — The rate on Ally’s high-yield savings account rivals some investment products offered by other banks. It’s currently at 1.25% APY no matter what the balance in your savings account is (rate accurate as of June 11, 2020).
High-yield CDs — Interest rates on Ally’s high-yield CDs are high compared to competitors and are currently between 0.50% APY and 1.35% APY depending on the CD term (rates accurate as of June 11, 2020).
Stellar mobile app — Apps and other digital components matter when your bank is fully online, which is why we’re mentioning Ally’s mobile app. This app is easy to navigate, intuitive, and has a ton of tools, including a voice assistant, to help streamline your banking process.

Cons of Ally Bank

Low money market rate — Ally’s money market interest rate is lower than the rate it offers on online savings, so it wouldn’t make much sense to use Ally for this type of investment.
No way to deposit cash — There is no way to deposit cash with Ally; your options are limited to eChecks, online transfers, direct deposit, wire transfers and sending checks in the mail.
No money orders — Since you can’t bank with Ally face-to-face, you can’t get a money order from your bank; you’ll have to do it elsewhere instead.

2. Discover Bank

You may recognize Discover’s name from credit cards, but this credit giant also offers deposit banking that’s fully online, and you’ll get a ton of perks in return.

Pros of Discover Bank

Cash back rewards on debit purchases — There aren’t many banks that offer cash back on debit purchases, but Discover does; you’ll get 1% cash back on up to $3,000 worth of debit purchases each month.
No fees, minimums, or direct deposit requirements — Pretty self-explanatory, but you don’t have to worry about excess fees or direct deposit requirements to bank with Discover.
Limited overdraft fees — With Discover, you’re only on the hook for one insufficient fund’s fee per day and there are no fees for a returned deposit.
Solid CD interest rates — The interest rates offered by Discover on CDs are really competitive; right now you can earn between 0.35% and 1.25% on the money deposited in a CD depending on the term (rates accurate as of June 11, 2020).

Cons of Discover Bank

No branch access — There is only one physical branch of Discover Bank, which means that you won’t be able to pop in easily if you need to (but that’s the downside to all online banks).
Steep minimum on investment products — Discover may offer solid interest rates on CDs, but it requires a $2,500 minimum for money market accounts and CDs, which could price the average person out of this type of investment.
Low savings account rates — One of the areas that Discover lacks in is the interest rate it pays on savings accounts; there are other online banking options with higher rates.

3. USAA Bank

This military-focused bank operates almost completely online and offers way more than just your traditional deposit banking options. The downside is not everyone is eligible to join. You’ll have to be a military member, veteran, or directly related to a military member or veteran to join.

Pros of USAA Bank

Competitive rates on lending products — USAA is more than just a deposit banking option; this bank offers the entire gambit of products, including auto, mortgage, and personal loans with stellar rates.
Credit card options — Unlike most other banks, USAA offers a ton of different credit card options to its members, including cash back and rewards cards, which is unusual for a bank that operates almost completely online.
Free checking and savings accounts — USAA Bank’s checking and savings account options are free, meaning they don’t come with fees, and there are no balance requirements either.
Early military payday — As an online bank focused on the military, the majority of its perks are military-focused, including the early military payday, which gives military members access to their money a day early if they receive direct deposit on their payments.

Cons of USAA Bank

Must be a member to bank with USAA — It can be nearly impossible to become a member of USAA if you aren’t a military member, a veteran, or have a direct connection to a military member or veteran, which vastly limits civilian access to this bank.
Only one physical branch — The only USAA branch is located in San Antonio, TX, which means you’ll have to either be a local resident or be comfortable banking online to fully take advantage of what USAA offers.
Savings account interest rates are low — The savings account interest rates are low at USAA compared to competitors, so if you’re looking to optimize the money you earn on your savings, you’d be better off going with a smaller online bank instead.

4. Marcus by Goldman Sachs

This online bank is the deposit banking arm to Goldman Sachs and offers high-interest rates, no minimum deposits, and a ton of other perks, but you’ll have to make sacrifices to get them.

Pros of Marcus by Goldman Sachs

High interest rates on certain products — Marcus’ high-yield savings account offers a rate that’s four times the national average, which makes this account a solid investment if your focus is on earning interest on your money.
A variety of investment products — Marcus offers a ton of investment products compared to the average online bank, including several types of CDs.
No fees — There are virtually no extra fees with any of Marcus’ banking products, including no-penalty high-yield CDs and no-fee personal loans, both of which are unusual for any bank, online or otherwise.

Cons of Marcus by Goldman Sachs

No checking account option — One of the real downsides to banking with Marcus is that this online bank doesn’t offer checking accounts, which means you’ll have to take your checking account business elsewhere.
No ATM network — Marcus also doesn’t offer access to an ATM network, which can be really inconvenient, unless you’re prepared to transfer money from Marcus to your checking account and then withdraw it.
No mobile check deposit — You can’t deposit checks via mobile with Marcus; if you want to make a deposit, you’ll have to be prepared to connect an external account and make a transfer from that account to Marcus.

5. Capital One

You may equate the name Capital One with credit cards (and those “What’s in YOUR wallet?” commercials), but this lending giant also offers some solid deposit banking options that may make the hassle of banking digitally worth the effort.

Pros of Capital One

Top-notch customer support — One of the things Capital One banking has become known for is its excellent customer service, which is elevated by an intuitive, easy to use app that allows you to bank from the comfort of your home — or wherever you are.
High interest rates — The interest rates offered by Capital One on its savings accounts are higher than the average bank offers, which means you can maximize the money you have in your savings by earning a higher-than-normal interest rate on it.
No minimum deposit requirement — Unlike some other banks, Capital One doesn’t have a minimum deposit requirement on its deposit accounts, including CDs, which also offer rates higher than those you’ll find at brick and mortar banks.

Cons of Capital One

Steep overdraft fees — While you have to opt into Capital One’s overdraft fees, the fees you’re assessed if you overdraw your account are steep; this bank charges $35 up to four times each day for overdrawing your account.
No ATM withdrawals on savings — You can’t withdraw money from your Capital One savings account without being assessed a fee, even if you’re using a Capital One ATM to do it. You’ll have to transfer money from your savings to your checking and then withdraw your money to avoid fees, which can be a hassle if you aren’t using a checking account from Capital One.
No money market account options — Unlike some of the other online banks, Capital One doesn’t offer a money market account option, so if you’re trying to invest in an MMA, you’ll need to look elsewhere.

As with traditional brick and mortar banks, online banks can vary wildly from one to the next. You’ll need to figure out which one works best for you based on your banking priorities.

Ultimately, there are plenty of options out there, so pick one that meets your needs. Between the advanced app technology and other perks, you won’t miss much from the face-to-face banking process — if you choose wisely, anyway.