What's the Best Online Bank in Canada?

With the way we travel, conduct business and pay our bills we don’t always have time or access to a brick-and-mortar bank. Everything is expected to happen instantaneously especially when it comes to money.

Online banking provides easy 24/7 access to your accounts and investments so that you don't have to worry about finding a branch of your bank or waiting until they open on Monday. What's more, when travelling, having an online bank can mean the difference between paying exorbitant withdrawal fees and exchange rates and simply swiping a card with a competitive currency exchange rate built in.

In this guide, we will outline what online banking is and how it can help customers with everything from travelling the world to investing and paying bills at home.

What is online banking?

Online banking is exactly how it sounds: banking, but online! Customers can research various online banks to compare account types, account fees and services provided and pick the one that suits their financial needs. The main difference is that there are no physical locations and all financial transactions will be conducted through a smartphone app or website.

This allows customers to access their financial accounts anywhere they have access to the internet either through wifi or data. Customers can also use these accounts to make payments while abroad and outside of business hours.

How does online banking work?

Online banking works very similarly to traditional banking. Most online banks will provide debit card and credit card options to use ATMs and make payments in stores. Online banking offers a variety of chequing, savings and investing accounts just like many large banks. Most online Canadian banks are covered by the same institutions as traditional banks.

Canada Deposit Insurance Corporation CDIC and Credit Union Deposit Guarantee Corporation protect online Canadian banking. The CDIC guarantees coverage of up to $100,000 per account. This makes online banking as safe as traditional banking.

Advantages of online banks

Online banking has many advantages such as convenience, higher interest rates and investing opportunities at lower costs and fees. As of 2024 Canadian bankers association showed that over 75% of Canadians had an online bank account.

Convenience

Online banks operate through websites and apps making it so that people can conduct their banking while on the go. This is especially useful for customers that travel frequently for business or pleasure as they may not always be able to find an ATM or banking branch associated with their bank.

Online banking also comes with 24/7 customer support either through an automated message assistant or direct contact with agents if the issue is too complicated to be solved by the automated system.

Higher Interest Rates

Online banking is a competitive industry with many institutions competing for customers' business, because of this many online savings accounts offer 1-2% returns as well as sign-up perks while traditional banks are usually 0.05% or lower.

Investing Opportunities

While many traditional banks offer investment accounts, certain online banks offer access to crypto trading, foreign stock markets and precious metals. This allows investors to enter more markets and spread their investments further. But be warned with more investing power comes more personal responsibility.

Lower Costs and Fees

Many large banks still charge fees for standard accounts and services. Statistics Canada found that the average Canadian pays over $200 per year in banking fees. These fees range include chequing account fees, ATM fees, foreign transaction fees, non-sufficient funds fees, overdraft fees and more.

Many online banks charge $0 in account fees and have no minimum balance. They also partner with major ATM branches so account holders can have access to cash as well.

Disadvantages of online banks

While there are many perks to online banking there are also some disadvantages. Keep in mind that these conditions will vary between online banks and most of the time customers can find an online banking service that doesn’t have these disadvantages.

That being said here are the things to look out for:

• No in-person service: With a traditional bank, customers can walk into a branch and talk face-to-face with an employee. With online banking customers may be forced to either go through automated chat or calls or wait for a representative to be available.
• ATM access: Online banks usually have a partnership that allows customers to withdraw cash from ATMs without fees but if these ATMs are not in the area or the customer is travelling they may have to pay ATM fees.
• Limited services: Not all online banks offer the full range of account types and services. Customers should research multiple online banks to confirm that they will get the account type and service that they need.
• Physical goods: Some services such as safety deposit boxes are never going to be available with an online bank. If a customer needs a bank to physically hold on to valuable assets they should consider a traditional bank.

How to pick an online bank

As with a traditional bank, customers should pick their online bank based on their needs. Each online bank offers slightly different fees, services and opportunities. For instance, if they require access to stock trading, options trading and precious metal investment they should confirm that those services are available and what costs and fees are associated with those accounts. Similarly, if a customer is looking to start an RRSP account they should research what online company will offer the lowest management fees and the most benefits to growing their investments.

Are online banks safe?

With Canada Deposit Insurance Corporation CDIC and Credit Union Deposit Guarantee Corporation protecting Canadian online banking has become as safe as traditional banking.

With cyber theft on the rise, the greatest risk of an online bank is having users' personal information stolen but don’t fear. CDIC covers money lost due to fraudulent charges. It’s also worth noting that several major traditional banking institutions have had users' data stolen in the last few years. No matter what type of bank account is being used, customers should change their password regularly, avoid common password trends and avoid sharing personal information on public platforms.

Types of online bank accounts:

With the support of the CDIC and partnerships with major banking institutions, online banking offers many of the same accounts and services as traditional banking. This has made it so that customers' various needs can be met across the board.

• Chequing accounts are offered by almost every online bank as it is one of the most common and easiest-to-access account types. It is often used for daily transactions, direct deposits, atm withdrawals and paying off credit cards.
• Savings accounts are one step up from chequing accounts. Customers often use them for short-term saving goals and emergency funds. While savings accounts offer some interest there are much better long-term investment accounts for stable growth. Several online banks offer higher interest rates on a savings account.
• Hybrid accounts (savings and chequing) are an account type that has recently become popular with online banking. By offering the ease of access of a chequing account with the interest of a savings account, online banks can create one account that serves multiple needs.
• High-Interest Savings Accounts are very similar to savings accounts but usually offer higher interest. The drawback is that these accounts usually come with an account minimum.
• Registered accounts such as TFSA, RRSP, RRIF and LIRA are government-regulated retirement accounts. These accounts are set up by the Canadian government through the bank and receive tax breaks as well as some assistance. These accounts may come with management fees and account minimums. Customers should research their online bank terms before making these accounts.
• Investment accounts are a big draw for online banking. Many online banks offer easier access to various investment types. These can include cryptocurrencies, forex trading, foreign stock markets and precious metals.
• Youth or kid accounts are a good way to teach children about finances while helping them save money and form goals. To do this the parent or guardian must open a joint account that will have both the children's and the parents' or guardians' names on it. You could also open an RESP to start saving for your child's future tuition.
• Student accounts have become popular among high school graduates looking to start managing their money while planning or attending college. These accounts come with benefits such as no minimum deposit and no ATM fees. These accounts can also be linked to loans and other financial assistance for students.

Online banks vs traditional banks?

When it comes down to the question of online banks vs traditional banks there is no one answer. Both forms of banking have their benefits and in the end, the customer should do as much research as possible to determine which bank, online or traditional, is right for them. Many Canadians have multiple accounts spanning both online banks and traditional ones.

With the easy access technology has to offer and the growing need to enter global markets online banking opens a lot of doors to investing while also reducing fees while travelling. At the same time, traditional banking provides the person-to-person customer support that many customers still demand.

What online banks are available in Canada?

There are many online Canadian banks available to customers. These online banks offer a range of services with various fees and benefits. Some of the top online banks are Neo Financial, Tangerine, Simplii Financial, EQ Bank, Manulife Bank and Motusbank.

There are also alternative financial institutions that offer similar products and services such as Wealthsimple and Koho. These aren’t technically banks but fill the same role and offer great service.

Read more about online banking:

• Neo Financial Review for 2024
• Our Picks: Canada’s 8 Best Online Banks