Banking / Banks

The Pros and Cons of Going to an Online-Only Bank, According to Experts

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An online-only bank seems completely feasible in this day and age. You probably can’t remember the last time you even went into a bank, so why does it matter if your bank doesn’t have a brick and mortar branch? Deposits and transfers can be done online, and that’s what you use your bank for the most, so it seems silly to limit yourself to banks that have physical locations. Financial experts say there are lots of advantages to a bank that’s all remote, but there are some pitfalls as well. Read what the experts told GOBankingRates so you can make the right decision when it comes to where to bank.

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PRO: Higher Interest Rates on Savings Accounts

When you have a savings account with an online bank (also known as a direct bank), you’re probably being treated to higher annual percentage yields (APY). This means your balance will grow faster over time, because the account’s interest rate is higher. Shad Elia, CEO of New England Home Buyers, said this is due to online banks’ lack of significant infrastructure and overhead costs. “The most generous direct banks will offer 1-2% more than traditional bank accounts, a difference that can quickly add up with a large balance.” Elia said.

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PRO: Lower Fees

You’ve probably encountered overdraft fees at a traditional bank. Because of the lack of overhead costs Elia mentioned, this also means online banks are less likely to charge any extra penalty fees that brick and mortar banks do. “At a direct bank, you’re less likely to be charged a variety of fees, including those associated with maintaining an account with a low balance, making direct deposits, or paying by check or debit card. Direct bank accounts are more likely to have no minimum balance requirement or service fees,” Elia said.

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PRO: Better Online Experience

Traditional banks are scrambling to create a seamless online experience, but there are still kinks left to work out. If a bank is entirely online, you can bet their grasp on technology is exceptional. This makes for a more intuitive banking experience. “There is a lot of money being spent by traditional banks to improve their online presence and service, including the launch of applications and the upgrading of their websites. The overall online banking experience provided by direct banks, however, appears to be superior,” James Angel, Co-Founder of DYL said.

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CON: No Personal Relationships

When it comes to banking, you’re dealing with a lot of personal information. It helps to have an established relationship with a person who handles the bulk of your finances. If you have a traditional bank, you get to build that relationship, and build trust at the same time. Sep Niakan, the Managing Broker of Condoblackbook says having these relationships can really help when it comes to broadening your financial portfolio. “Getting to know the staff at your neighborhood branch can be advantageous if you require additional financial services, such as a loan, or if you need to modify your banking arrangements.” Niakan added that having a relationship with someone at a bank also has its perks “A bank manager typically has some discretion when it comes to changing the terms of your account in response to changes in your personal circumstances or waiving a mandatory fee or service charge.”

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CON: It’s Difficult to Deposit Cash

With a physical bank, you can walk in and deposit cash, then have it reflected in your account minutes later. With online banks, it’s not that simple. “Many online banks make it exceedingly difficult to deposit cash,” said David Wurst, Owner and CEO at Webcitz.”If this is something you intend to do frequently, it’s worth checking the [online] bank’s policy. International transactions with some direct banks may also be more difficult, if not impossible.” The best advice is to investigate a direct bank’s cash deposit policy before you commit to banking with them to gauge how difficult it will be for you to do.

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CON: Access to ATMs

Direct banks don’t have tens of parking lots around town where you can pull up and retrieve cash from an ATM. Knowing where you can withdraw cash is kind of hard to figure out when it comes to online banks. “In the absence of their own ATMs, internet banks must rely on third-party ATM networks like AllPoint and Cirrus,” Angel said. These are often harder to find than a traditional banks’ ATMs, so you’ll have to plan out trips based on when you need cash. There’s also the question of fees. “While many direct banks offer free access to network ATMs or reimburse any monthly charges you pay, there could be a restriction on the number of free ATM transactions you may do in a given month with these banks,” Angel cautioned. However, you can get lucky, as some online banks will allow you to use any ATM and they will reimburse you the fees.

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About the Author

Sam DiSalvo is an LA-based comedian, writer and actor who's performed all over the country. Her written work has appeared in numerous digital publications. As a copywriter, she's worked with a variety of major brands including GoldieBlox and Thrive Causemetics. Sam loves dogs and is currently perusing leisure suits to buy for her corgi mix, Barry