5 reasons why online banks are worth your time
Lower operation costs could mean more cash in your wallet.
Thanks to mobile check deposits, peer-to-peer payment systems and online bill pay, the need for in-person banking is diminishing. If you haven’t visited a physical bank branch in years, an online bank could offer everything you need – for cheaper. Compared to banks with costly locations, online banks have less overhead because they don’t need to maintain branches, allowing them to pass those savings to their customers in the form of higher returns and fewer fees.
1. Online banks are insured
Safety is a big concern for many. But as long as the online bank is insured under the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA), your deposit accounts are just as protected as they would be with a brick-and-mortar bank.FDIC and NCUA insurance protects select deposit accounts. This means in the event of a bank failure, your checking, savings, money market accounts, and certificates of deposit (CDs) are protected up to $250,000 with an insured bank or credit union.
While some online banking options come from fintechs, they’re still insured through partnering banks. For example, Chime is a financial technology company that offers banking services through Bancorp Bank, N.A. and Stride Bank, N.A. — both banks are FDIC members. So while Chime isn’t a bank, your checking or savings account with Chime is FDIC-insured.
2. Get stronger APYs
Since online banks don’t have to maintain physical locations, they’re more likely to offer higher rates of return on products like savings accounts and CDs. It’s common to see online banks offering savings accounts with interest rates as high as 4% to 5% – rates that are much higher than the 0.40% national average, according to the FDIC.
Combine that rate with daily or monthly compound interest, and you could catapult your earnings without having to lift a finger.
3. Fewer fees
No one likes fees. If you’re on the prowl for a free checking or savings account, know that most online banking services don’t require an opening deposit, minimum balance requirement or charge monthly maintenance fees.
It’s common for traditional banks with branches to require an opening deposit between $25 to $100 for a checking or savings account. And those that allow you to waive monthly maintenance fees require you to maintain a certain balance or set up direct deposits.
Some of the best free checking accounts are offered by online banks or fintechs, which include Upgrade Rewards Checking Plus, Chime Checking account, and SoFi’s hybrid checking and savings. All three don’t charge an opening deposit or monthly maintenance fee for their checking accounts, making them free to open and maintain. Also, online banks commonly skip other fees like overdraft fees, bank statement fees and domestic wire transfer fees.
Without branches, online banks have to allow their customers to do most banking services remotely — and often 24/7. This includes remote check deposits, account transfers, managing fraud alerts, applying for loans and reviewing bank statements all through the bank’s mobile app or website.
Online banks are especially convenient for those in remote areas or small towns. If the online bank operates in your state, you don’t have to worry about living near a branch to handle your banking needs.
You’ll have to do all things customer service related over the phone or through chat support. While this can be a pro or a con, depending on your preferences, online banks won’t require you to head to a location to sort out an issue.
5. High-tech services
Because online banks don’t have the cost of maintaining physical locations, they’re able to invest more into technology — in fact, they’re forced to if they want to allow their customers to bank exclusively online and set themselves apart from traditional banks.
Regardless of the online bank you choose, it’s almost always going to have its own app where you can manage most of your banking services from your phone. It’s also very common for online banks to be integrated with Zelle, a peer-to-peer payment system. With Zelle, you can send money to friends and family from the app — usually with no fees on the bank’s end.
Virtual cards are common with online banks, too, letting you add them to popular digital wallets like Apple Pay or Google Pay. Online banks may also offer bonus features like budgeting tools, reward programs, loan calculators, investing advice and more.
Online banks aren’t perfect, but they have their place
Online banks aren’t without their faults. One of their biggest downsides is lacking customer service, since they lack in-person support. For a better chance of resolving issues more effectively, look for an online bank with phone support, as some are limited to email or chat only.
Also, if you frequently make cash deposits, an online bank may not be the best fit as an everyday checking account. Online banks often lack the ability to accept cash deposits, and those that do accept it often require you to deposit it through a Green Dot location for a fee.
But these downsides don’t mean online banks have to be out of the running. There’s no limit to how many bank accounts you can have, and one of the biggest advantages of online banks is their high rate of return on savings products, so you could keep your current bank account open and have an additional savings account with an online bank.
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