Thanks to the rise on online banking, the days of standing in line waiting for service at a brick-and-mortar bank are largely in the past. Between direct deposit, online bill pay, smartphone check deposits, and banking apps, many people can handle their finances without ever speaking to a teller. These technologies have given rise to the online-only bank, institutions that don’t have physical branches at all. But, do these online-only banks actually measure up?
What is an Online-Only Bank?
Online-only banks are financial institutions that don’t maintain physical branches. Unlike traditional banks, you can’t head to branch to deposit a check, make a withdrawal, or ask a teller questions about additional products.
Instead, online-only banks are largely virtual institutions. You can open and access accounts online, learn about products on their websites, and handle most common banking tasks through any internet-ready device.
In cases where you do need to speak to an actual person, you do typically have that option. Most online-only banks have phone-based support, and some use online chats to assist customers. Just because you can’t walk into a branch doesn’t mean you are entirely on your own, so you aren’t necessarily sacrificing on the customer service front if you use their services.
The Advantages of Online Banking
Some of the main benefits of banking with an online-only institution are financial. First, since their overhead costs are lower, their fees are usually lower. For example, you may have access to a larger range of fee-free ATMs or can get some of your ATM fees reimbursed as part of the package. If you choose a premium checking account, that may cost you less than it would at a traditional bank as well.
Additionally, online-only banks commonly offer interest rates on savings accounts that far exceed traditional brick-and-mortar banks. It’s just another way that their cost-savings benefits their customers.
At Ally Bank, you can get an annual percentage yield of 1.85 percent, even if you have a lower balance in your savings account. Considering that the national average interest rate on a savings account is only 0.08 percent, that’s a massive difference.
How Online-Only and Traditional Banks are the Same
In many ways, online-only and traditional banks are very similar. Nearly every bank and credit union allow you to bank online, at least to some degree. Usually, you can check your balances, transfer funds, and pay bills through their websites or apps. Remote check deposit is also increasingly common.
Additionally, online-only banks offer similar amounts of security as traditional banks, especially for online activities. Online information is usually encrypted, which can actually make it safer than dealing with paper receipts or statements.
Further, most online banks are FDIC-insured, just like their brick-and-mortar brethren. Your deposits have the same level of financial protection at any institution that is insured by the FDIC regardless of whether they have physical branches.
Online-only banks are also branching out into increasingly larger product lines. Initially, online-only banks focused on savings accounts and checking. Now, you can find credit cards, auto loans, mortgages, and investment options there too.
In fact, many also provide customers with access to IRAs, allowing them to save for retirement with ease. Some online-only banks also have business accounts and personal loans too.
However, certain online-only banks do have somewhat limited product lines. What is available varies from one institution to the next. If you know you need multiple accounts types, or could in the future, it’s wise to explore several banks to see what is and isn’t available.
How Online-Only and Traditional Banks are the Different
The biggest difference between online-only and traditional banks is their physical presence. Online-only institutions don’t typically have any way to get support in-person, while brick-and-mortar ones do.
Without a physical branch, depositing cash into an online-only account can be a challenge. Some of these banks do have mechanisms for depositing cash through an ATM, but that isn’t always available. You may be able to use the cash to buy a money order, allowing you to deposit the money order remotely. However, this can come with additional fees since money orders aren’t typically free to get.
Otherwise, you may have to maintain an account at a brick-and-mortar bank and then initiate a bank-to-bank transfer to get the money into your online account. Usually, these transfers can take a few business days, so they aren’t always the most efficient approach.
Is Opening an Online-Only Bank Account Easy?
In most cases, opening an account at an online-only bank is incredibly simple. You provide the typical information, like your name, address, and Social Security number, and the bank verifies your details. At times, you may need to provide information from another bank account for an initial deposit as well.
Overall, the process is very similar to opening an account with a traditional bank through their website. If you are comfortable with the concept of using the internet to complete the task, you won’t commonly encounter any strange hurdles just because the bank is online-only.
Should You Open an Account at an Online-Only Bank?
If you are looking to open a new bank account, then online-only institutions are worth considering. You do need to evaluate them as you would any other bank or credit union before you jump in. That way, you can make sure they offer the products and services you need. You will need to learn how to avoid online banking fraud that could happen to seniors if and when you open an account online.
Otherwise, your experience will likely be very similar to a brick-and-mortar bank. If you don’t generally need to make cash deposits or get assistance from a teller, an online-only bank could be right for you. However, if you do need those services, you may be better off with a traditional bank.
Do you use an online-only bank? Tell us about your experience in the comments below.
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Tamila McDonald has worked as a Financial Advisor for the military for past 13 years. She has taught Personal Financial classes on every subject from credit, to life insurance, as well as all other aspects of financial management. Mrs. McDonald is an AFCPE Accredited Financial Counselor and has helped her clients to meet their short-term and long-term financial goals.