3 Reasons Online Banks Rule

On the fence about online banking? Here's what you need to know.

When I was growing up, there was a local bank in my neighborhood that had the nicest employees, and every time my mom took me inside, I was given a lollipop. Years later, when I moved to my current neighborhood, I sought out a local bank with a similar vibe -- a welcoming environment and, yes, free candy. But while I still do a bit of banking at that local establishment, I keep most of my money in an online savings account instead. Here are three reasons online banks are a smart bet for consumers across the board -- and why you should consider doing some or all of your banking with an online institution.

1. Less overhead means fewer fees for you

It's a common misconception that bank accounts are free to open and maintain. In many cases, they can be free, but that's not a given. In fact, physical banks have a lot of expenses to contend with to keep their doors open. They have to pay rent, maintain clean facilities, and grapple with the many costs that come with operating an in-person business. To recoup some of these costs, brick-and-mortar banks tend to impose costly fees on account holders. These include charges for not maintaining a minimum account balance, ATM fees, and fees for engaging in too many transactions within the same month.

The upside of online banks is that they don't have the same overhead to contend with. The result? They don't need to recoup their money by charging expensive fees. That means you get more flexibility in how you bank without having to stress about fees eating away at your money.

2. More attractive interest rates

Not having to pay to rent space and maintain physical branches gives online banks the option to spend less. And for this reason, in addition to charging fewer fees, they're generally able to offer higher interest rates on savings accounts and certificates of deposit than brick-and-mortar banks. It's always a good idea to shop around for the best rates, but chances are, you'll find that online banks beat physical banks in this regard across the board.

3. Terrific customer service

If you call your local bank before 9 a.m. or after 5 p.m., you may not get a live person. But if you have an emergency, or you're too busy during the workday to deal with personal banking matters, that's a problem. The upside of online banks is that they tend to offer solid customer service, which means even if you call at off hours, you're more likely to get someone on the line.

Also, some online banks do an especially good job at training their customer service representatives because they know they're limited to phone or online interactions with customers (whereas at a physical bank, a friendly smile can help soften the blow when a customer isn't happy). This isn't to say that you won't get great service at a physical bank, but it's something online banks are known to try hard at.

Some people like the idea of being able to walk into a bank and interact with others. But while physical banks have their benefits, online banks do as well -- so if you've shied away from online banking in the past, it may be time to give it a try.