Who Should I Bank With

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 8 minute read

The popularity of online banks, often known as virtual banks, has exploded in recent years. Finder reports that by 2020, one-third of Americans will have or are planning to open an account with a bank that operates solely online. 

Since virtual banks typically charge fewer costs and facilitate faster, easier transactions, they may be a more practical option for storing your savings. But not everyone is on board with the internet banking trend. There are many who worry that their money isn’t as safe in a virtual bank.

Many people find it inconvenient that they can’t drop off their checks at a physical bank location. Still, others favor the personalized attention they might receive from their neighborhood financial institution.

Some of these worries are warranted, while others are not. Before deciding whether or not to open an account with an online bank, it is vital to weigh all of the potential benefits against any potential negatives.

Online banking Advantages

It’s not hard to see why people are flocking to online banking services. There are many advantages to banking online.

1. Increased Interest

Online banking institutions like CIT Bank save money each month on overhead costs like maintaining physical bank locations. They’re in a position to charge greater interest rates to customers as a result of these cost reductions.

According to a study by WalletHub in 2021, the average annual percentage yield (APY) for an online-only bank’s savings account was 0.45 percent (Annual Percentage Yield). Three times as high as the typical rate offered by banks on savings accounts.

The same study, however, concluded that the benefit is significantly less than with checking accounts available only through physical branches. The average rate of interest offered by these accounts is 0.25%, which is less than half the rate offered by a typical internet savings account.

That’s presumably due to the fact that teller windows want as many individuals as possible to open checking accounts, even if doing so usually results in additional costs for the bank.

2. Low Fees

Online banking services typically feature lower fees as well. The WalletHub survey found that traditional banks typically charge $6.44 in monthly maintenance fees for interest-free checking accounts, while internet banks typically charge $2.61.

Costs for overdrafts, insufficient funds, and online bill payments are also lower at online banks, as are the minimum opening deposit and required average daily balance to avoid maintenance fees.

For instance, Varo requires no opening deposit, has no monthly fees, and lets you get your money two days early. A print statement fee is typically the only additional cost you’ll see when banking online. But the research also highlights that many of these costs are even lower with credit unions.

3. Advanced Technologies

Transactions at an online bank have to be completed entirely online. Thus, they are more likely to provide cutting-edge online and mobile banking options, such as mobile check deposits, than conventional banks. Debit cards compatible with mobile payment systems like Apple Pay is available from several online banks.

4. Good Customer Service

Internet-only financial institutions may afford to devote more resources to customer service than traditional banks do because they have fewer branch locations to maintain. Almost every bank has customer service options including toll-free phone lines and online message centers, but online-only banks tend to excel in these areas.

Customers of online banks were more satisfied with the service they received in 2018 than those of branch banks, according to Consumer Reports. Credit unions were the only institution where a majority of clients were completely content.

5. Secure Sites

People are wary of internet banking due to concerns that their personal financial information could be stolen by hackers operating remotely via the Internet. Financial analyst Richard Barrington told Insider that the stakes are just as high at a brick-and-mortar institution.

Since all banks now keep consumer data in massive data centers, it is just as simple to get into a physical bank account as it is an online one.

Also, just like traditional banks, the best online financial institutions are insured by the FDIC. What this means is that any loss of money, regardless of how it was stolen, is capped at $250,000.

6. Convenience

One of the main benefits of using an online bank is the flexibility it provides in terms of when and when you may conduct your financial transactions.

Anytime, anywhere, they don’t have to get in their car, go to the bank, and wait in line for a teller when they can do their banking online or with a mobile app. You may do everything from making deposits to paying bills and transferring money from any location with an Internet connection.

Pros of Online Banking

Even while there are many benefits to using an online bank, there are also some disadvantages. However helpful it is to have access to banking services around the clock, there are still some tasks that are more efficiently completed at a physical bank branch.

Here are a handful of online banking’s disadvantages:

1. No specialized ATMs

Across the United States, large conventional banks like Bank of America and Chase have established extensive networks of ATMs. Even though online banks don’t own ATMs, they often have reciprocal agreements with other networks so that their customers can withdraw cash from such machines for free.

One of the earliest online banks, Ally Bank, has a relationship with the AllPoint network, which manages 43,000 automated teller machines (ATMs) in the United States. An additional online financial institution, Chime, has relationships with over 38,000 MoneyPass® and Visa Plus Alliance ATMs.

In contrast to what the major banks provide, however, these ATM networks are not always comprehensive. As a result, it may be more difficult to get your hands on your cash without shelling out some dough. Some online financial institutions offer monthly reimbursements for ATM costs paid to other institutions.

2. Deposits Are Tougher to Make

It was inconvenient to mail a check to an online bank when it was the only option for depositing funds. Due to innovations like mobile check deposit, it’s now simpler. In order to deposit a check into your account, simply photograph both sides of the check and submit the photos online.

Withdrawals made in this manner are subject to the same rules as normal withdrawals, but deposits made in this manner are not. You may have to wait up to five business days for funds from a mobile deposit to appear in your account at some online banks like GoBank. In addition, many online financial institutions do not accept cash deposits.

3. Reduced Services

Banks that exist solely online don’t necessarily have the same variety of services available. Many Internet banks, for instance, don’t provide consumer or commercial loans.

4. No Direct Communication

Personal interaction with a banker is something you won’t get from an online bank. That’s a major deal breaker for a few readers. People like doing business with people who recognize them by name and can tailor their service accordingly. Customers also prefer face-to-face interactions in the event of an account emergency, such as a missing ATM deposit or a clerical oversight.

But even the most basic banking institutions don’t always provide this feature. It’s becoming more challenging to develop a long-term rapport with a single banker due to the widespread closure of bank branches as a cost-cutting measure

Choosing an Online Bank

What if, after reviewing the aforementioned lists, you conclude that online banking’s benefits outweigh its drawbacks? Finding the most suitable online bank is the next step.

Finding the bank with the lowest interest rate isn’t the only consideration. When choosing a virtual bank, it’s important to look at how they perform in key areas like security, ease of use, and support for existing customers. Look around at other local banks to be sure there isn’t one that is a better fit for your needs.

Examine Interest Rates

The higher interest rates offered by online-only banks are one of the main incentives for making the transition. If the pricing isn’t competitive, there’s no reason to switch.

Check out these resources to learn about some of the greatest current bank account rates:

  • Best High-Yield Savings Accounts – Interest Rates
  • Best Money Market Accounts With the Highest Rates
  • Best Bank Accounts With the Highest-Interest CD Rates

Verify security

Verifying the bank’s FDIC membership is the greatest strategy to safeguard the funds in your online bank account. Bankrate displays this data by the bank, right under the institution’s name. Try searching for the name of the bank you’re looking for on the FDIC’s BankFind website if it doesn’t appear there.

Your funds in an FDIC-insured account are safe, but your privacy is not ensured. Find out how your bank handles your personal information when you bank online by reading its privacy policy. On the other hand, you need to do everything you can to protect yourself from identity theft. 

For instance:

  • Use antivirus software on your computer from a trusted brand like Kaspersky.
  • Keep your operating system up to date.
  • Choose a strong password, and don’t share it with anyone. You can use 1Password to keep all of your passwords secure.
  • Never use a public or shared Wi-Fi connection for banking.
  • Learn to recognize and avoid phishing scams.

Find out How You Can Access Your Funds

If you require access to your funds at any time, there is no purpose in putting them in the bank. Before opening an account with an online bank, you should investigate how simple it will be to add funds and withdraw funds.

For more information, including how long it takes for a deposit or transfer to show up in your account, check out the bank’s frequently asked questions page.

Check out whether there is any data concerning the bank’s ATM system. When you need cash from your online account, you can only do so at an ATM, therefore it’s important to make sure there are many of those around. 

Try to find ATMs in close proximity to your regular hangouts, such as your house, office, and other regular destinations.

Examine Customer Service Evaluations

Customer service should be taken into account as a final consideration. Checking out the most recent bank ratings in Consumer Reports is the best approach to learning how banks perform in this area. 

Over 72,000 of the magazine’s readers were polled about their financial institutions in 2018. It evaluated roughly 90 financial institutions based on their responses about customer service, communication, number of complaints, and fees.

A membership to the website is required to view these ratings there. The article will also be printed in the magazine, which you may find at your local library if you don’t have access to an electronic version.

Bottom Line

However, traditional brick-and-mortar banks aren’t your sole option either. It is recommended by professionals to look into other options such as local credit unions and smaller community banks. Their costs, prices, and fees may be comparable to or lower than the competition. 

By going with a local institution, you may be able to enjoy the convenience of internet banking in addition to making in-person branch visits as needed. You can also reap the benefits of both types of banking by maintaining accounts at two different institutions. 

Without having to deal with things like ATM charge reimbursements or remote check deposits, moving money between the accounts is simple. You may get the best of both worlds with this setup. 

Your savings account at a virtual bank might generate high interest with little maintenance fees. However, you can keep enough cash on hand for your day-to-day expenses in a nearby bank, which is more convenient. See our recommendations for the top online banks if you’re considering opening an account.

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