4 reasons to switch to an online-only bank
While you may be perfectly happy with the brick-and-mortar bank you have, it may not be giving you all the perks you could be getting with an online-only bank. Even though there is no physical location to go to with the latter, the benefits quickly outweigh that. Besides, with more and more people doing their banking online, when’s the last time you stepped inside your bank anyway?
Here are some top reasons to try out an online-only bank.
They have higher-than-average interest rates
If you’re not happy with the low (low) interest rate you’re getting at your current bank, trying out an online-only bank may be worth your while — and make you more money in the process. “Unlike traditional banks, online banks have consistently and proactively raised their interest rates over the last year or so — and consumers have noticed,” said Arielle O’Shea, NerdWallet’s banking expert, in an email. “These banks can’t compete with the visual presence of brick-and-mortar banks, so they attract customers by paying higher interest rates.”
She noted that while the national average annual percentage yield (APY) on savings accounts is just .10 percent, online banks are paying upwards of two percent. To that point, Ally Bank’s online savings accounts have an APY of 2.20 percent on all balance tiers while you’ll earn 2.10 percent APY for all balances with Discover Bank. So, you can literally increase or double your savings when using an online-only bank.
They have low — or no — account fees
When it comes to online-only banking, another big benefit is lower fees — or the absence of them altogether. “Because online banks don’t have to spend money on branch maintenance, they tend to have lower — or no — fees,” said O’Shea.
Similarly, many online-only banks allow you to use any ATM for free, or offer access to a large network of ATMs without fees. “That means consumers don’t have to choose between convenience and cost,” said O’Shea.
Since it’s easy to do all your banking via your smartphone, you probably rarely actually step foot into your bank. Of course, when using an online-only bank, this is par for the course. “Although online banks don’t give you the face-to-face interaction that you get with traditional brick-and-mortar banks, they do offer a different type of convenience that appeals to many people, especially younger generations — access to your bank accounts and bank services on any device, around the clock,” said O’Shea. “Plus there’s typically cutting-edge technology that makes depositing checks and monitoring account activity a breeze.”
Furthermore, if you need personal assistance, you can always call the bank’s customer service line.
They’re a great place to keep your emergency savings
Do you have an emergency fund, three-to-six months’ worth of expenses saved up? Bankrate’s January Financial Security Index survey found that only 40 percent of people could pay for an unexpected expense of $1,000 or more — and they’d do so by using savings. So, an online-only bank account could come to your rescue — it could make for a great place to set aside your emergency funds.
“Online savings accounts are the best place for the emergency savings we all need, or just as a temporary parking place for cash,” said Greg McBride, chartered financial analyst, chief financial analyst at Bankrate.com, in an email. “You’ll earn very competitive returns with federal deposit insurance protection, and can conveniently link it to the checking account at your current financial institution. This is something everyone should do.”
All in all, even if you don’t want to completely make the switch to an online-only bank, you can always use an online-only account in addition to keeping the brick-and-mortar bank you already have. “Switching all of your banking activity to an online-only bank requires a greater level of commitment,” said McBride. “Before doing so, assess whether you can easily move your direct deposits, online bill payments and other automatic withdrawals.” He said to also make sure you know how you’ll withdraw cash without incurring out-of-network ATM fees.
Speaking of cash, if you work in an industry wherein you’re primarily dealing with it, online-only banking may not be best for you. “It doesn’t work well in these instances,” said McBride. “It works best for people already doing their banking in a digital fashion.” Furthermore, he said online banking won’t meet your needs for things where you need a physical branch, including a safe deposit box, cashier’s checks, signature guarantees and/or in-person consultations.
One thing’s for sure: The only way to see if an online-only bank is for you is by trying one out for yourself.