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While traditional banks with walk-in branch locations are shrinking in number due to closures, bank mergers, and failures, online banks are growing — and for good reason. Some of the biggest expenses of operating a traditional retail bank are the cost of the real estate and the related costs of the branch. An online bank eliminates much of those costs; thus, these banks are able, for example, to pay their customers higher interest rates on their account balances. And online banks can offer better terms on checking accounts and loans.

The internet is lowering costs for many industries, and the banking industry is one of those. This doesn’t mean, however, that you should rush to become a customer of an online bank, because other financial companies, like mutual funds and brokerage firms, offer attractive investment accounts and options as well. (See the section “Exploring Alternatives to Bank Accounts” later in this chapter.)