The first names that come to mind when you think of a bank are probably the biggest national brands. Chase Bank, Bank of America, Wells Fargo: you’ve passed by their branches in your area and watched their commercials on TV.
But the banks with the best yields on savings accounts and CDs right now may not be as familiar. These often include online-only banks, neo-banks, or divisions of regional banks in other parts of the country.
Just because a bank name is unfamiliar doesn’t mean you should write it off, experts say.
In fact, of the largest 150 U.S. insured banks (based on assets), 18% have fewer than 10 domestic branches, according to Federal Reserve data. Some don’t have physical branches at all — they conduct all business online.
“There are over 4,000 [insured] banks in the country. So the fact that you have not heard of them is not unexpected,” says Greg McBride, CFA, chief financial analyst at Bankrate. Like NextAdvisor, Bankrate is owned by Red Ventures.
Here’s how to make sure any bank you choose — whether an online bank you’re unfamiliar with or your local credit union — is a trustworthy financial institution, and some benefits of banking online, according to experts.
Make Sure the Bank Is Insured
The first step in choosing any bank is making sure your deposits are insured by the FDIC (Federal Deposit Insurance Corporation). If you bank with a credit union, it should have NCUA (National Credit Union Administration) insurance. Look for the FDIC or NCUA logo on the bank’s website.
Smaller banks can have a risk of bankruptcy, Northrup says. Especially with the volume of new online banks as their services grow more popular, FDIC insurance is a necessary protection for your account balances.
The FDIC insures deposits up to $250,000 per account type to protect your money in cases of theft or a bank failure.
The FDIC’s BankFind tool can help you determine whether a bank you’re considering is insured, closed, or will be closing soon. The FDIC also shows the bank’s history, including if it merged with or acquired another bank, and every time it changed it’s name.
Check the Bank’s Financial Health
Aside from deposit insurance, you can also look at a bank’s assets and liabilities to get a sense of its health.
Assets can include cash reserves, loans, and financial securities that a bank owns. The FDIC’s Institution Directory offers a detailed view of every bank’s financials it insures. Generally, the higher the number of assets, the better you can feel about the bank’s financial security, says Northup.
You can also look at how long the bank has been in business, says Anh Thu Tran, a certified financial planner and president of Women’s Wealth, LLC. She recommends seeking banks with a five to 10 year history to gauge if the bank is successful and how its services have changed over time.
If you notice that the bank is closing branches or removing certain banking services when doing your research, ask a representative what other changes are expected, or other questions about the bank’s health to determine if it’s a good fit for you.
If you’re on the fence about whether an online bank is right for you, you may want to keep some money in the brick and mortar institution you’re used to, while transferring a portion of your savings to an online savings account before you make a full switch.
Evaluate Security Features
Whether you’re considering an online-only bank, or you plan to do some of your banking online with a brick-and-mortar institution, you’ll want to ensure the bank’s website and mobile app are secure.
Since they’re already digital native institutions, many online banks typically have a leg up on some of the mobile app features compared to local credit unions and banks, Northup says. Even still, while these smaller banks may not have the budgets for robust platforms, they can be just as secure.
Always make sure that your information is protected online and use strong personal security measures to protect your information. Create strong passwords, use secure networks, and opt into two-factor authentication options.
You’re unlikely to get scammed by the bank itself if it’s FDIC-insured, Tran says. But any bank may still be at risk of a data breach or outside security attack.
Before you sign up for an account, check online to see if the bank has experienced a data breach or cybersecurity attack. Those attacks may be especially concerning if they’ve happened multiple times.
Northup also strongly recommends making sure your bank uses 256-bit encryption and two-factor authentication to protect your data and money digitally.
Benefits of Online Banks
Once you’ve ensure the bank you choose is secure, you can begin to evaluate features that will make the most of your money and help you meet your goals. Here are a few reasons we like online banks for short-term savings and other deposit accounts.
Fees for excess transactions, monthly maintenance and ATMs can add up quickly — and you’re more likely to find these charges at large, national bank chains.
“Typically, online banks have fewer fees or no fees at all,” Northup says. Check the fine print of your account agreement or ask your bank what types of fees you may incur and when they’re due so you know what costs to expect ahead of time, he adds.
If the bank charges a number of different fees, it may be costly to maintain your account over time and even chip away at any interest earnings.
One of the most compelling reasons to consider a bank outside of those you’re already familiar with is for the potential to earn more on your savings.
More well-known national banks with dozens of branches aren’t paying good rates right now, McBride says. “It’s the online banks that are paying more competitive returns. Some of those may be names you recognize, but others might not, because they might be the online banking arm of the small community bank or regional bank in another part of the country,” he adds.
Tran says she compares interest rates between online and brick-and-mortar banks with clients to show how online banks have higher yields.
“It could be a difference of 10X more to 20X more to 100X more,” she says.
Just remember, these higher rates should always go hand-in-hand with the security measures that will protect your personal data and money. If you’ve found a bank with insurance and strong security standards, then look at the APY. If you cannot find all the information you need to comfortably open an account it’s best to choose another bank, especially if it’s a bank you haven’t heard of, adds Tran.
Here are our picks for the top savings account rates available today, all from FDIC-insured online banks:
Best Savings Account Rates
|Salem Five Direct||3.50%|
|Lending Club Bank||3.25%|
|Prime Alliance Bank||3.25%|
|Live Oak Bank||3.10%|
|American Express National Bank||3.00%|
|Goldman Sachs Bank USA||3.00%|
A bank can have a lasting effect on your financial health, so it’s important to do your due diligence before opening a new account. But it can also pay to look beyond the financial institutions you already know and bank with — for potentially higher returns on your balances, convenience, and security.
Before you open any new account, call or look online for more information about the bank’s own financial health, details of the account itself, and insurance. If you’re unsure about the bank’s fees, requirements, and security measures choose another bank that offers more transparency to give you peace of mind.
“The financial strength, security, and reputation of the financial institutions you’re choosing outweigh anything else,” says Tran.