As all of our daily lives begin to shift to the internet, you might be wondering what king of options the internet has established are in terms of storing your money. Many neo banks or banks not featuring physical locations now comprise a significant and growing share of deposits – particularly with millennials.
After all, we order our food, talk to our loved ones, and get all of our news online. Why not manage our finances on the world wide web, as well?
One possible option that you may be considering is internet banking. Before you do that, however, it is definitely smart to get all the facts on what internet banking actually is.
Let’s break it down to find out whether or not investing in internet banks is a good idea.
What is Online Banking?
Before you decide to invest you money in an online bank or neobank, it is best to know what you can expect.
Online banking means taking care of your money through the power of the internet. While most brick and mortar banks now allow you to manage your accounts on the internet, truly online banking is something else entirely.
An online bank is typically accessibly only through the internet, and while that comes with some clear downsides, it also comes with some pretty large benefits.
Primarily, the fact that there are no physical branches mean online banks can afford to offer higher rates and lower fees than traditional banks. The best ones, are just as safe and dependable as traditional banks too!
As more and more things in our daily lives start to take place online, it is time to think outside the box when it comes to saving money. While your parents might be very reluctant to hand over their banking information to an online institution, you know that sometimes these types of establishments are in fact safer than any kind of brick and mortar business.
The important thing is to consider the option. Whether or not it’s right for you is totally your decision to make.
Now that that’s out of the way, let’s go deeper into the pros and cons of online banks.
- Lower fees and better interest rates: This was already touched on above, but it’s important to really understand what this means. Because online banks don’t have to spend money on their many branches across the country, they tend to have lower or no fees, and higher interest rates on deposit accounts. The best online banks have Annual Percent Yields (APYs) upwards of 1.60%. Compare that to the .01% APYs offered by many traditional banks and the national average of .07% and you can see how you’ll be making quite a bit more with an online bank.
- Free ATM access: You might be worried how you’ll be able to access your cash if you can’t head to your bank’s brick and mortar establishment to withdraw wither with a teller or an ATM. Don’t worry, well-established online banks such as Allpoint or MoneyPass have thousands of ATMs all over the country. Of course, you’ll probably want to make sure that there are ATMs in your area, but after that you should be good to go.
- Security: This may be another concern of yours before you sign up, but you’ll be happy to learn that established online banks are actually considered to be just as safe as traditional ones.
- No in-person assistance: This might be a deal breaker for some people that feel the need to talk to bank tellers in person. Online banks rarely have branches – sometimes they are available in cities – so you’re going to have to be prepared to have your questions answered over the phone. If you value in-person communication, this might not be for you.
- Limited checking: While credit cards work very well with online banks, checks are a very different matter. This is another potential pitfall of online banks. If you are someone who likes to pay with check, be aware that many of the online banks that offer the highest APYs do not offer checking accounts.
- Accessing cash can be a problem: Online banks can also be troublesome for people who deal in cash a lot. Online banks can make it fairly hard to deposit cash. If you’re not comfortable having a lot of cash lying around your apartment, you might want to either make sure that your online bank deals with cash in a streamlined way, or avoid them altogether and stick to a more traditional bank.
How to Be Sure That You Are Banking Safely
One question that you might have is whether or not online banking is safe. In this day and age, it’s not uncommon to be quite wary of sharing personal information, and putting large amounts of money into the hands of online companies. There are ways to make sure that you’ll be treated fairly and safely by your online bank, though.
First, check to make sure that your prospective online bank is insured by the Federal Deposit Insurance Corp. you should also check to make sure that security measures like encryption and fraud monitoring are offered as well.
To protect yourself while online banking, avoid logging onto your bank while using public Wi-Fi and watch out for suspicious emails or messages.
Should you open an online bank account?
All this brings us to the final question of whether or not online banking really is right for you. Before you sign up, consider checking in with local banks and credit unions to see if there are other established institutions that fit your needs and values.
It’s also wise to remember that you can actually do both if you want! There’s nothing wrong with having multiple bank accounts and no one is forcing you to do one over the other. In fact, having both an online bank account and a traditional bank account can offer you the best of both worlds. You can easily handle checks and cash with your traditional bank, while also getting those great APY numbers that the online banks can offer.
The options are at your fingertips. All you have to do is figure out what option is best for you, and take the necessary steps to make sure you are being a responsible, safe, and smart banker!