With packed schedules and never-ending to-do lists, it's no wonder most Americans are embracing online banking for its ease and availability. In fact, according to a 2024 survey by the American Bankers Association, 77 percent of Americans prefer managing their bank accounts digitally—far outpacing the 8 percent who still favor visiting a brick-and-mortar bank branch.
While many traditional banks now offer online features, a growing number of customers are turning to online-only banks—financial institutions that operate entirely without physical branches—for even greater flexibility and potential savings.
But only-only banks aren’t one size fits all, of course. Here's a breakdown of the benefits and drawbacks of online-only banking so hat you can weigh whether it's the right fit for you.
What is an online-only bank?
Instead of visiting a physical branch, online-only banks—also called challenger banks—give you access to your accounts through a website dashboard or a mobile app. From opening a savings account to setting up automatic bill pay—or even depositing checks right from your phone—you can handle many of your banking needs without ever leaving home.
It’s worth noting that many traditional banks now offer mobile apps and online tools, giving you flexibility in how you bank. However, fully digital banks are designed to compete with big-name banking institutions by offering cutting-edge technology and, oftentimes, lower fees.
Like traditional banks, most reputable online banks are insured by the Federal Deposit Insurance Corporation (FDIC), which protects deposits up to $250,000 per depositor, per ownership category, in case the bank fails.
While online banking is becoming increasingly popular as it makes everyday banking tasks more convenient, digital banks still face many of the same risks as traditional banks and credit unions. For example, cybersecurity threats—such as data breaches and phishing scams—remain an industry-wide concern. And while most online banks take extra steps to prioritize the security of customers’ personal information, some may not have the resources to keep up with evolving threats.
Financial stability is another potential challenge, as competition among online banks is high and profit margins are often slim. So, before choosing any financial institution—online or traditional—be sure to review its FDIC insurance status, financial stability ratings, and customer reviews to ensure you’re partnering with a secure and reliable bank.
Benefits of online-only banks
If you're considering switching to a challenger bank, there are several compelling reasons why it might be the right move for your finances.
Convenience and flexibility
Online-only banking puts your bank in your pocket. With an internet connection, you can check your balance, transfer money, pay bills, or set up alerts—anytime, anywhere. No need to visit a branch or wait in line.
Lower fees and better interest rates
Many challenger banks don’t have physical branches, which means lower operating costs—and those savings can get passed on to you. That’s why banks such as Discover and Chime offer fee-free checking and savings accounts. You might also earn more interest on your savings. For example, some online high-yield savings accounts—such as those from Varo and AdelFi—currently offer up to 5% APY for qualifying customers, compared with the current national average of just 0.38%. That means your money can grow faster.
Built-in money tools
Challenger banks often include helpful tools to make managing your money easier. Banks such as Ally offer advanced features to track spending, create savings goals, and get reminders for upcoming bills. These tools can help you stay on top of your finances—and even save for big goals such as a new car or a vacation.
Drawbacks of online-only banks
While online-only banks come with plenty of benefits, they aren’t perfect, of course. Here are a few potential drawbacks to keep in mind.
Limited access to cash
Since challenger banks don’t have physical branches, you’ll rely on mobile deposits, digital transfers, and third-party ATMs to move your money. That works fine for everyday banking, but it can be inconvenient if you need cash quickly or services that require showing up in person—such as getting a money order, cashier’s check, or notary service.
No in-person customer service
Some people prefer speaking with someone face-to-face—especially when dealing with sensitive financial matters. Challenger banks don’t have tellers or local branches, which can be a dealbreaker if you value that personal interaction or need help resolving a complex issue.
Fewer account options
Not every challenger bank offers a full range of products. Some, such as SoFi, focus on essentials such as basic checking and savings accounts. Others, such as NBKC Bank, cater more to entrepreneurs and/or small business owners. If you want to keep all your financial products—from credit cards to auto loans—in one place, an online-only bank may not have everything you need.
Weighing the pros and cons
There's no universal solution when it comes to picking a bank. The right fit ultimately depends on your needs and lifestyle. For example, if you're an entrepreneur or enjoy in-person customer service, a traditional bank may make more sense. But if you're always on the go or enjoy managing everything from your phone, a challenger bank could be a better option.
Keep in mind that you don't have to choose just one. Combining a traditional branch with an online-only bank could help you cover all your bases—giving you the best of both worlds.
Before making a decision, take time to explore your options. This way, you can find the setup that works best for your financial goals and everyday needs.