An online-only bank seems completely reasonable in this day and age. After all, 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 agree, saying there are lots of advantages to a bank that’s all remote. Read what the experts told GOBankingRates and find out their top recommendations for online-only banks.
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.
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 costs 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.
Having control over your bank account at your fingertips makes managing your money significantly easier. “Long gone are the days of waiting in drive-thru lanes or lobby lines,” says Frank Trotter, President of Battle Bank. “Today, virtually all your banking needs can be done through your phone, via a mobile app, web browser, or by talking to a live person – whenever, wherever, and however you please.”
Many online banks offer advanced security features that brick-and-mortar branches cannot. “[Online] banks can protect customer data and financial information by using secure encryption and login procedures,” says Alastair Hazell, CEO and Founder of The Calculator Site. “Furthermore, many online banks will notify customers of suspicious activity, providing an extra layer of protection.”
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.
What To Look For When Choosing a Bank
If you’re ready to take the plunge and switch to a direct bank, Dennis Shirshikov, Head of Content at Awning says there are a few things you should consider. “It’s important to do your research and compare different online-only banks to find the one that best fits your needs. Look for a bank with a strong reputation, good customer service, and a wide range of products and services that meet your financial goals.”
Experts’ Top Choices for Online Banking:
- Ally Bank: “[Ally] offers a great interest rate, no minimums on savings accounts, and no hidden fees,” Hazell said.
- Capital One 360: Hazell highlighted “a wide range of banking services and the ability to transfer funds between versions quickly and easily” as advantages of Capital One 360.
- Simple Bank: “Simple Bank is an excellent choice for those who want an easy-to-use banking app and no additional transaction fees,” Hazell said.
- Chime: “Another excellent digital-only bank would be Chime, which is great for individuals who have struggled getting checking accounts from traditional banks,” Nerve CEO, John Waupsh said.
- SoFi: “SoFi is a great resource because they offer a wide range of products and services without ever having to wait in a branch,” Waupsh said.
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