Online-only banksRecently, several of my friends made the switch from traditional brick-and-mortar banks to internet-only banks. Because online banks lack many (or any) physical branches, they have little overhead and can offer better interest rates and charge fewer fees. I do much of my banking on the web already, so what would be the difference? Here, some pros and cons.
Pros of Internet Banks
- Higher interest rates (or even interest rates at all!) on savings A quick search of bankrate.com shows that a number of internet-based savings accounts pay around 1% interest - not a ton, but better than the piddling 0.08% (sadly, not a typo) my current large brick-and-mortar pays me. And the best rate I found for any bank with branches in New York City is 0.40%.
- Checking accounts with interest Internet banks with these types of accounts pay between 0.25% and 0.95%. Local NYC banks: 0.01% to 0.10% - and all require a hefty minimum balance to avoid account maintenance fees ($500 to $15,000). The internet banks' minimum balance requirement? $0.
- Totally free checking (really) Brick-and-mortars used to offer these accounts, too, but times got tough, and now many charge fees, particularly if you don't keep a specific daily balance or don't have direct deposit into your account. Plus many banks charge for checks - annoying if you don't always use online billpay.
- Free ATMs - everywhere* Because internet banks don't typically have physical locations, some will cover ATM transaction charges; in some cases, even the high ones at convenience stores and casinos. *But do your research - some online-only banks may require you to use ATMs within their networks to avoid these fees (or only give you a pass for a certain number of non-network withdrawals a month).
Cons of Going Online-Only
- Deposits can be a pain A lack of brick-and-mortar locations means no place to deposit a check. If your job pays by direct deposit, this can prevent some of the drama. But for all other checks, you're relying on the mail (usually with postage-paid envelopes), and you'll have to wait longer for funds to be available in your account. Banks that require you to use in-network ATMs, however, may accept deposits via ATM.
- Limited number of transactions per month Some of these banks have stipulations, particularly on savings accounts, as to how many times per month you can access your funds (but then, so do some brick-and-mortars). If you often make transfers or withdrawals, any account with "excessive transaction" fees may not be for you.
The discomfort factor of banking only online Yes, these banks are FDIC-insured (always look for this certification before opening an account!), and yes, technically your funds at a brick-and-mortar aren't set aside physically in a little box labeled with your name, but there is something comforting about knowing you could walk into the bank, request to close your account, and walk out with the cash. Plus, if you like the human-to-human interaction of getting to know your local tellers, brick-and-mortar is the only way to go. (To be fair, my friends have been impressed at the responsiveness of the customer service of their particular online bank.) Before opening any account, check Bankrate's security ratings for the bank in question.
Do you use an online-only bank? Would you? Tell us in the comments below.
- by Amy Roberts
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