As time goes on, more and more services that could only be offered in-person are making the transition to online business. The online marketplace offers new opportunities for bankers and consumers alike, at the cost of additional competition. Competition is great for the consumer, though.
While online banks are less prevalent than their brick-and-mortar competitors, they have less overhead expense. This allows them to offer more lucrative options for us, and in some cases, be the best option for you!
The Pros and Cons of Online Banking
Let’s get started with the positives:
- Convenience of opening an account. Signing up with an online bank is simple. You don’t have to meet anyone in person, and the application process is typically very quick. Have all your personal information ready to go, and you’ll be opening an account within minutes. Be aware that your credit reports will be accessed after submitting your application. If you have bad or thin credit, your application could be delayed or denied entirely.
- No paperwork. For more traditional folks who prefer physical proof of their financial agreements, this may seem like a negative. For the rest of us, paperwork is a hassle. When you do your banking online, all your contract documents and statements are saved to your account automatically. They can be accessed at any time, and if you still want paper statements, you can opt to receive them as well.
- Higher interest yields. As we mentioned, online banks have far less overhead than traditional banks. They don’t have storefronts, meaning they have less employees overall. The money saved is usually put towards a more competitive offering for the consumer, such as higher interest ratings on savings accounts or better cash-back rates. You can expect to receive 1-2% additional savings interest over a traditional bank. In the long-term, that extra percentage can turn into generous earnings.
- Better integration with technology. Since online banks are limited to virtual space when conducting business, the virtual experience has to be top notch. Expect apps and websites to be quick and effective. Traditional banks haven’t quite reached the same level of user experience, but they are starting to catch up.
Online banks are looking pretty good so far, but they’re not without their downsides:
- Lack of ATMs; difficult cash transactions. Some online banks will provide access through generic ATMs, then reimburse you at the end of the month for surcharges. This only applies to withdrawals, though. You won’t be able to deposit cash into generic ATMs, so be aware if that is something you typically do.
- Limited services beyond banking. Traditional banks offer financial advice and a personalized banking experience for each customer. Customer service for online banking is more generic, and you won’t be able to form a personal relationship with a banker.
Choosing an Online Bank That Works for You
There are a few points to consider before jumping on-board with the first online bank you see…
- Consumer reviews. Reviews from real customers are king. In the age of Yelp and Google, review ratings are a direct window into the experience you can expect. Look for reviews that express similar benefits and detriments. Are multiple people talking about how good their annual returns are? Are they frustrated with slow response from customer service?
- Opening deposit. Some online banks require an opening deposit, and others do not. If no deposit is required, be aware the bank may be making that money up elsewhere in fees. If there is a deposit, there may be less fees or higher interest than other banks. It’s entirely situational.
- Fees. Not all banks are the same when it comes to fees! Read the fine print so you won’t be unexpectedly charged for something, such as too many account transfers in one month.
- Interest yield on savings accounts. Already mentioned before, online banks are going to offer better interest on savings accounts than traditional banks. Compare and contrast to find the best fit for you.
- “FDIC Insured”. When an online bank is FDIC insured, it means your money will be backed by the federal government. Should your banking institution fail or close doors, you won’t lose everything you’ve invested.
What You Need to Get Started
Once you’ve found the bank that fits your needs best, get ready to signup by having your personal information ready. You’ll need your Social Security Number, Date of Birth, and a valid form of identification. A driver’s license, state ID, Passport, or Passport Card are usually acceptable. You will also be asked for your address, and may be asked to provide proof of residence.
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Frequently Asked Questions
Is online banking safe? I don’t even like to take pictures of my checks.
Do online banks offer money wires?
Yes they do. As technology for money transfers becomes more advanced, other options will be offered as well. Even traditional banks like Wells Fargo still support money wires, but have integrated the Zelle platform which is much quicker.
What kind of accounts can I open online?
You can open any account online that you would find at a traditional bank. Checking, Savings, Credit Lines, Loans, Investments, 401k, etc…