Personal Finance in Your 20s and 30s: Online Banks

By Eric Tyson

Although traditional banks with walk-in branch locations are shrinking in number because of closures, consolidations, and some failures, online banking is growing — and for good reason. One of the biggest expenses of operating a traditional retail bank is the cost of the real estate and the related costs of the branch.

Online banks generally don’t have any or many retail branches and conduct their business mostly over the Internet and through the mail. By lowering their costs of doing business, the best online banks may offer better account terms, such as paying you higher interest rates on your account balances. Online banks can also offer better terms on loans.

Online banking is convenient, too — you can conduct most transactions more quickly on the Internet, and by banking online, you save the bank money, which enables the bank to offer you better account terms. And because online banking is generally available 24/7, you don’t need to rush out at lunchtime to make it to your bank during its limited open hours. (Note: Traditional brick-and-mortar banks now generally offer many online services.)

According to a recent customer ratings’ summary done by Consumer Reports, the highest-rated online banks are (in order, starting with the highest rated): USAA, Schwab Bank, Everbank, Discover Bank, Ally Bank, State Farm Bank, Capital One 360, and E-Trade Bank.