3 Pros and 3 Cons of Stashing Your Paycheck in an Online Bank, According to Rachel Cruze
Written by
Nicole Spector
Edited by
Molly Sullivan
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Just as easily as we’re able to make friends online, shop online and apply for jobs online, we’re able to bank online. In fact, we now have online-only banks. Who would have thought such a thing would exist back in the days of dial-up internet?
Unlike traditional banks, online banks have no physical presence and, because of the costs saved on overhead, are able to extend higher interest rates to customers.
For example, the online-only bank SoFi currently offers a high-yield savings account (HYSA) that bears 4.20% APY — quite a lot more than the national average interest rate for a traditional savings account, which is 0.45%.
With interest rates as high as that, who wouldn’t want to open an online bank account? But put your eagerness in check for a second and consider what financial guru Rachel Cruze has to say about online banks. On her YouTube channel, Cruze recently published a video titled “Is It Wise to Keep Your Money in an Online Bank?” in which she breaks down the pros and cons of online banking.
Pro: Most Online Banks Are FDIC-Insured
When working with a bank — online or traditional — it’s of paramount importance that they’re FDIC-insured. FDIC insurance generally covers up to $250,000 in total deposits. So, if a worst-case scenario happens and your bank collapses, that money is federally insured and safe.
Cruze noted that most online banks are FDIC-insured.
“Your money is guaranteed to be safe,” Cruze said. “I think sometimes with online banks, people are like, ‘OK, Can I trust them? Are they legitimate? Do your research, check into the specific one you’re looking at, but you will see that the majority of them are insured.”
Con: Moving Money Usually Takes Longer With an Online Bank
When you move money from one account to another with an online bank, the process usually takes longer than it does with a traditional bank. This is a big con.
“When you need access to this cash, it could take one to two business days either to get it transferred over to another account or to get what you need out of it,” Cruze said.
However, some online banks do provide a debit card for checking accounts, which helps expedite access to funds.
Pro: Online Banks Typically Have Higher Interest Rates Than Traditional Banks
We already covered this one, but it’s a big one: Online banks typically offer higher interest rates than traditional banks.
“On the savings side, this is a great thing,” Cruze said. “Because when it comes to savings accounts, money market accounts, high-yield savings accounts, this is a benefit that you will get from online banks over brick-and-mortar.”
Con: Lack of Face-to-Face Troubleshooting and Customer Service
Online banks give you those fat interest rates that traditional banks can’t afford, yes, but they do so at the cost of face-to-face, in-person customer service. Online banks aren’t ideal for customers who need one-on-one time with their bank’s service teams.
“The great thing about a brick-and-mortar bank is that you can drive down to the branch and see a person and actually talk to a person and get what you need fixed there,” Cruze said. “And sometimes that’s just faster.”
With online banks, you typically have to dig around the site or app to solve a particular problem. This is especially true with newer online banks that are still tweaking their services and building history with clientele.
Con: Less ATM Access and, Usually, More Fees
Traditional banks with sprawling brick-and-mortar presences are well stocked with free, 24/7 ATMs that make it easy to get cash out fast.
You won’t find this level of local convenience with online banks.
“Online banks, sometimes you have to use other ATMs and there’s gonna be some fees attached to that,” Cruze said. “Now, there are some online banks that are affiliated with brick-and-mortar banks, which is great, but not always the case. So if you need cash … you probably will pay a hefty fee to use another ATM.”
Pro: Online Banking Platforms Are Easier To Navigate
When it comes to digital offerings, online bank sites and apps are often easier to navigate than those provided by traditional banks.
Cruze shared that she uses a brick-and-mortar bank for checking and said that sometimes the user experience with that institution can be “wonky.” This isn’t the case with the online bank(s) Cruze also uses.
“Online — they are so user-friendly,” Cruze said. “I mean, they have to be because they are an online bank, but … it is easy to access your information, get your records. I mean, the user-friendliness of online banks is beautiful and wonderful.”
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