It only takes a few minutes to open an online bank account.
Bypassing your local bank may be a wise financial decision, as digital banks compete by offering better rates and lower fees to make up for the fact that they do not have branches. You may prefer to bank in a branch, and if so, then a digital online bank might not be your proverbial "cup of tea." That's ok - stick with your bank. On the other hand, if you are not making much use out of your local branch, you might want to consider if the foregone benefits justify the higher costs.
Digital banks, without hardly any exceptions, pay much higher rates of interest on your savings. You might be stunned to know that most of the big banks currently (November 2019) pay less than 3/100ths of one percent interest. By contrast, digital banks pay much more. As of October 30th, 2019, I found 13 banks paying more than 1.22 percent on savings. Some are still paying more than 2 percent. The math says you will can earn 60 times more interest merely by going online.
You willl also find that most digital banks make a concerted effort to design their accounts to be fee-free:
- No overdraft fees
- No monthly fees
- No minimum balance fees
- Free ATMs
- Free online statements
Online banks still let you access a network of ATMs, almost always for free, so that you can still get cash when you need it. If you need to deposit a paper check, you can use your phone to take a photograph of the check. From there, you can upload the image to your bank. They will process it in the same manner as any other check, using an electronic copy to route the funds from the bank of the party who wrote the check over to your account.
What Do I Need to Sign Up for a Bank Account online?
It is very simple to get an account online. You will need several things:
- A social security number. While some institutions will accept an International Tax Identification Number ("ITIN"), such institutions go against the norm. Federal banking regulators require financial institutions (both banks and credit unions) to verify the identity of their customers. They have good reasons to do so, as many bad actors would like to have a US bank account at their disposal to accomodate various money laundering schemes. In the end, we are all better off with a system that requires the use of SSNs.
- Your permanent physical address. You cannot use a P.O. Box. Most financial institutions will refer to various address registries as another means of verifying that you are who you have attested to being in your application.
- An email address and a smartphone. As a digital bank needs to know how to communicate with you, they will require that you provide contact information when you fill out the application. Additionally, they may use either or both of these data points to authenticate your identity.
You must be at least 18 years of age. This rule applies to any bank account, be it online or physical. Banking regulators prohibit minors from opening their own financial instruments. Parents and legal guardians may open a custodial account for their minor dependent.
In some cases, you may need to have a state-issued photo ID at your disposal, in case the bank decides to ask for additional information to verify your identity.
Other steps: You will need to establish a username and password, answer some security questions (name the city where you were born, et al), and consent to some legal disclosures.
Our Favorite Digital Bank Accounts
person opening a bank safe deposit box
Here are the typical steps:
1. Select an account. If you already know the account you want, then you can go directly to its website. If you're going to compare fees and features first, you would be well-served to go to a site such as WiseWage https://www.wisewage.org or NerdWallet, www.nerdwallet.com where you can evaluate the merits of a set of different accounts.
2. Once you have selected a bank or credit union account, go to the site and click “open account.”
3. The bank may take the step of providing disclosures about the account in question. Those disclosures may be highlighted or listed item-by-item inside a form. Since there are lawyers involved, expect that language to use words like “may” or “should,” to underscore that you “may” pay an ATM out-of-network fee or that you “should” receive an online statement.
4. Tell the bank about yourself. Are you an existing customer of this bank? If so, you can log in and skip the process of providing your personally-identifying information. If not, go to the next step:
5. Provide your full name, your mailing address, your social security number (or ITIN), and your date of birth. The financial institution needs this information to comply with federal law. Many people work tirelessly to steal identities; many fraudsters like to use stolen info to open accounts in the name of other people. The application process has these questions so that your bank or credit union can verify that you are the person who you say you are.
6. Tell the bank how it can communicate with you offline. You will need an email address and a phone. Either of these modes may be used to send a confirmation message during the signup process. At this point, your institution may send you a confirmation code as a security precaution.
7. Create a username, password, and answer the various security questions. Sometimes, you may be asked to predict how you will use the account in the future. For example, Varo asks how many times a month, you expect to receive funds electronically. They do this as another way of guarding your account. If you say you plan to make one to three electronic deposits in any given month, but Varo Money notices that you have received 100 deposits, they will have grounds to flag your account.
8. The financial institution may ask additional security questions. You might need to identify addresses where you previously resided, other banks where you already have an account, or perhaps the make and model of your car. Banks subscribe to services that collect this information. They can match these kinds of data points to known unique identifiers (social security number, date of birth) as one more step of verification. I know of one entity that asks applicants to verify the eye color listed on the applicant’s driver’s license.
9. Choose your account preferences. You may have the option to choose paper statements versus receiving statements via a pdf inside an email. Many online banks will not provide a paper statement. Some will, but only for a fee. Others will mail a paper statement for free upon request. Generally, the benefits of online checking come at a price – receiving a free paper statement is one such example. You may ask to receive paper checks. On the other hand, many banks no longer provide checks.
10. Decide about overdraft: If the account has an overdraft capability, the FI will ask for your permission to “opt-in.” The opt-in rules apply to overages that occur during PIN debit and ATM transactions. Everyone should understand that even if you do not “opt-in” to overdraft, you can still pay an overdraft fee. Typically, an overdraft on an account without an opt-in permission occurs as the result of a bounced check.
11. Establish an initial opening deposit. Many banks require a deposit as a condition for account approval. At most of the big banks, you must provide a deposit when you open the account. Ally Bank, Wells Fargo has a $25 minimum as a condition of approval to open a new account. You will need $50 to open BB&T’s Fundamentals or Bright Banking checking accounts. Bank of America requires an initial deposit of $100 to open its Bank of America Advantage Plus Banking account. On the other hand, Citibank does not have a minimum deposit requirement. Varo and Empower, both featured on WiseWage, are the same. Neither asks for an opening deposit. That is not to say that you cannot do so. Yes, any bank would prefer to have deposits. In spite of that, some banks are willing to process an application and mail a debit card even if there is no promise of a deposit at that time.
12. Accept the various terms and conditions of the account. Your bank will ask you for your approval of specific account rules. As well, it will ask you to acknowledge that you have been given notice of your rights under the Electronic Funds Transfer Act and potentially the Wire Funds Transfer Act.
The bank (or credit union) will run your application through a variety of screening algorithms. Sometimes, banks turn down applicants who are listed on a bad-credit registry such as ChexSystems. Often, the reason for rejection is temporary. I see many instances where a bank rejects an application because a person only recently relocated to a new address. That creates a security flag on an account. Rest assured, with a bit of time; these things can work themselves out.
If accepted, you will consent to receive a debit card in the mail.
At this point, you can set up to have funds direct deposited to your account. Most banks will provide a routing and account number at this moment. The Empower account includes a service that will allow a new applicant to email his or her account number and the corresponding bank’s routing number from inside the app.
The process is roughly the same for accounts that must be opened with a smartphone. All of the same details apply except you will be taken from a web page to the AppStore or Google Play service. You will be asked to download an app. After that, everything is mostly the same: you still fill out the same information, answer security questions, and create your necessary sign-on permissions.
I am a fan of online banking. Online banks operate with fewer costs, principally because they do not have to operate a branch network to service their accounts. Online institutions pass on those savings in the form of lower fees (or no fees), better interest rates on savings, and high-tech features. Online banks were the first to offer remote deposit of checks by smartphone. Today, they offer some of the highest rates on savings accounts anywhere.
The Wisewage blog is not intended to describe any particular product mentioned elsewhere on the site. Please refer to each product page for details about any specific product. You can read our full legal statement about the blog here.
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Adam Rust has worked to defend consumers against harmful financial practices since 2005. He has written extensively about overdraft fees, payday lending, credit insurance, student loans, prepaid debit cards, high-cost installment loans, and subprime mortgage lending. The New York Times interviewed him when it reported on the CFPB's rulemaking on prepaid debit cards; subsequently, his research paper framed the debate on consumer protections.