More people than ever are switching to online banks vs brick-and-mortar. Whether it’s for personal or business use, online bank accounts offer a level of ease and specific perks that brick-and-mortar just can’t these days.
With so many different types of accounts out there and dozens of online banks to choose from, it can be confusing and time-consuming to sift through all of the benefits and perks of each of them.
That’s why we decided to create your one-stop how-to guide to opening a bank account online. We will cover how to choose what type of account to open, how to choose which bank is right for your unique needs, what documents and personal information you will need before applying for an account, and the different ways of funding your account.
All you need to do is sit back, read, and learn!
Different Types of Accounts In Online Banks
The first step in deciding which type of account is to determine your goals for your account. Is it a personal account or a business account? Or something more than the basic accounts, like a CD or IRA? Do you want both checking and savings or just need one of those at this time? Is it a single account or will you be sharing it with someone as a joint account? These are key questions to ask, and depending on your answer, will determine what bank you end up choosing.
Here are the different types of accounts available through banks online broken down for you:
A checking account is a basic account that allows you to deposit and withdraw money, make purchases, and pay bills. Online banks offer free checking accounts with no monthly fees, ATM access, and mobile banking options. Some online banks even offer cashback rewards for debit card purchases.
Savings accounts are designed for long-term savings goals. They offer competitive interest rates, which means you earn more money on your deposits. Online banks typically offer higher interest rates than traditional banks, making them an attractive option for savers.
Money Market Accounts
Money market accounts are similar to savings accounts, but they offer higher interest rates and more flexibility. They also come with a higher minimum deposit requirement than savings accounts. Online banks offer money market accounts with no monthly fees and easy access to your money.
Certificates of Deposit (CDs)
CDs are a type of savings account that allows you to earn a fixed interest rate for a specific period. Online banks offer CDs with various terms, ranging from six months to five years. The longer the term, the higher the interest rate. CDs offer a guaranteed return on your investment, making them a low-risk option for savers.
Individual Retirement Accounts (IRAs)
IRAs are a type of retirement account that offers tax advantages. They allow you to save for retirement and earn interest on your investments. Online banks offer traditional and Roth IRAs with no fees and competitive interest rates.
No matter what type of account(s) you want to open, there is sure to be an online bank that fits your exact needs. Which brings us into...
How To Choose The Online Bank That Fits Your Account Needs
This definitely isn’t a decision you want to quickly jump into. Researching online banks thoroughly and each of their perks and benefits is vital in your financial growth and success.
There are key steps you should take to ensure you are choosing the bank that fits your personal or business’s exact unique needs:
- Consider Your Financial Goals - Before selecting an online bank, consider your financial goals. Are you looking to save for a down payment on a home? Do you want to build an emergency fund? Are you planning for retirement? Depending on your financial goals, you may need different types of accounts, as mentioned above. For example, if you want to save for a down payment on a home, you may want to consider an online bank that offers a high-yield savings account. If you're planning for retirement, you may want to consider an online bank that offers individual retirement accounts (IRAs).
- Evaluate Fees - Fees can eat away at the money in your account over time, so it's essential to evaluate them when choosing an online bank. Some online banks offer no monthly fees if you meet account requirements each month, while others charge fees for account maintenance, transactions, and ATM usage. Look for an online bank with transparent fees and no hidden charges. Also, check if there are minimum balance requirements for accounts and what the penalties are for not meeting them.
- Look for High Interest Rates - We know that may have caught you off guard. But remember you are dealing with bank accounts and not a form of credit. High interest rates are a good thing in the world of banking, as they make you money on your money! One of the biggest advantages of online banks is the ability to offer higher interest rates than traditional banks. Look for an online bank that offers competitive interest rates for their accounts, such as savings accounts and CDs. Even a small difference in interest rates can add up to significant savings over time.
- Check the Accessibility and Convenience - An online bank should be convenient and accessible to use. Check the availability of the online bank's customer service and support, such as their phone and chat options. Also, look for an online bank with a mobile app that allows you to manage your accounts on-the-go easily. Make sure the online bank has a user-friendly website that is easy to navigate and find information about your accounts.
- Review Security Measures - Security should be a top priority when it comes to managing your finances online. Look for an online bank that uses secure encryption technology and two-factor authentication to protect your accounts from unauthorized access. Also, check the online bank's fraud protection policies and make sure they have 24/7 monitoring of your accounts.
- Research the Bank's Reputation - Before selecting an online bank, research the bank's reputation. Look for reviews and feedback from current customers to gauge their satisfaction with the bank's services. Also, check the bank's financial stability and history of customer service.
- Compare Account Features - Finally, compare the account features offered by different online banks. Some online banks offer a range of account types, such as checking, savings, and investment accounts. Others may only offer one type of account. Consider the account features, such as interest rates, account minimums, ATM access, and transaction limits. Choose the online bank that offers the features that best fit your financial needs. (Click the link mentioned above for blogs that compare online banks and their features in-depth….we did all of the research for you!)
Choosing the right online bank for you shouldn’t be taken lightly. It determines the financial success of your future and the one you choose can help or hinder in achieving your financial goals.
Documents & Personal Information Needed To Open An Online Bank Account
Opening an online bank account is a convenient and easy process that requires you to provide certain documents and personal information. While the specific requirements may vary depending on the online bank, there are some general documents and personal information that you will need to provide. Here are some of the most common requirements for opening an online bank account:
- Personal Identification - To open an online bank account, you will need to provide personal identification, such as a government-issued ID card or driver's license. This is required to verify your identity and to ensure that you are legally allowed to open a bank account.
- Proof of Address - You will also need to provide proof of your address, which can include a utility bill, a lease agreement, or a bank statement. This is required to verify your address and to ensure that the online bank can contact you if needed.
- Social Security Number or Tax ID Number - To comply with federal regulations, online banks require a social security number or tax ID number to open an account. This information is used to verify your identity and to comply with anti-money laundering laws.
- Employment Information - Some online banks may require employment information, such as your employer's name and address, to verify your income and employment status. This may be required for certain types of accounts, such as loans or credit cards.
- Financial Information - You will need to provide financial information (if applicable), such as your current bank account information, to fund your new online bank account. This can be done through a transfer or direct deposit from your existing bank account.
- Signature - Finally, you may be required to provide a signature, which can be done electronically or by mail. This is required to authorize transactions and to verify your identity.
Funding Your Online Bank Account
Once your account is approved after providing all of the necessary documents and personal information, then it’s time for the best part - putting money into your account and seeing those dollars grow. There are many ways to go about this, depending on where your money is coming from. There are also pros and cons of each way of funding your account. Here’s how to go about funding your online bank account:
- Direct Deposit - Direct deposit is a convenient and secure way to fund your online bank account. With this option, your paycheck or other recurring income is automatically deposited into your account on a regular basis. The main advantage of direct deposit is that it's reliable and consistent, so you don't have to worry about forgetting to transfer funds or missing a payment. However, the downside is that you may not have immediate access to your funds, and you may need to wait a few days before you can use the money.
- Bank Transfer - Bank transfer is another popular way to fund your online bank account. With this option, you can transfer money from your existing bank account to your online bank account using the routing and account numbers provided by your online bank. The main advantage of bank transfer is that it's quick and easy, and you can usually access your funds within a few hours. However, there may be fees associated with this method, and you may need to provide additional information to complete the transfer.
- Debit Card - Some online banks allow you to fund your account using a debit card. With this option, you can simply enter your debit card information and transfer funds directly from your card to your online bank account. The main advantage of using a debit card is that it's fast and easy, and you can usually access your funds immediately. However, there may be fees associated with this method, and you may need to provide additional information to verify your identity.
- Mobile Check Deposit - Another option for funding your online bank account is mobile check deposit. With this method, you can simply take a photo of your check using your smartphone and deposit it directly into your online bank account. The main advantage of mobile check deposit is that it's convenient and fast, and you don't need to visit a bank branch to make a deposit. However, there may be limits on the amount of money you can deposit using this method, and there may be a delay before you can access your funds.
Before even choosing an online bank, make sure that they accept the way that you prefer to fund your account.
Opening a bank account online has become increasingly popular due to its convenience and ease of use. By choosing the right online bank and providing the necessary documents and personal information, you can open an account and start managing your finances easily and securely. Whether you prefer direct deposit, bank transfer, debit card, or mobile check deposit, there are several ways to fund your account and ensure that you have quick and easy access to your funds whenever you need them.
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