Online banks are a relatively new player in the arena of retail banking, but they have been growing faster than their traditional counterparts, tripling their share of new primary banking relationships over the past decade. As a new generation of adults begins laying down its financial roots, the convenience and affordability of the online banking model is forcing even the largest traditional banks to incorporate online features into their deposit account services.
When you switch to an online bank, you receive multiple benefits: higher interest rates, lower fees, mobile access, and a surprisingly wide network of ATM locations.
Higher Interest Rates on Your Deposit
In today’s low-interest environment, it’s unusual to see major banks offer annual rates higher than 0.01% on their standard savings accounts. Online banks offer rates on your savings that can literally be a hundred times better that what you’d find walking into the closest branch of Chase or Bank of America. The strongest online savings options can net you around 1.00% APY on your deposit, and while that isn’t the most exciting rate of return on an investment, it certainly represents a more efficient option than traditional savings accounts.
In the case of brick-and-mortar banks, online savings rates also outperform all but the longest term certificates of deposit (CDs), which charge penalties on withdrawing your money before the end of a term. While increased accessibility tends to come at the cost of decreased rates, in this matchup, online savings accounts offer both better rates and easier access to your money when you need it.
Fewer and Lower Fees
Both checking and savings account fees come in a dizzying variety of rules and amounts. Online banks often charge no monthly maintenance fees and lower fees for common services like overdraft, wire transfers, and out-of-network ATM fees. A few, like Bank of Internet USA, offer next-day reimbursement on all ATM fees.
Traditionally, fees represent a large portion of the profit banks make on consumer deposits. However, the online banking model mostly avoids the heavy cost of maintaining physical branch locations, an advantage online banks leverage into reduced fees for their customers. Instead, online banks focus on a smooth, robust online consumer experience and participate in networks of third-party ATMs shared by multiple banks.
Banking on Your Own Schedule
Far from forcing you to stop by the bank in the middle of your workday or shutting down service on weekends, online banking emphasizes the ability of customers to access their accounts and make changes at almost any time or location. The proliferation and growing sophistication of mobile Internet browsing now make it possible to deposit checks, set up automatic transfers, check balances, and pay bills through your cell phone or tablet.
In case of more complicated requests, online banks generally invest in extensive telephone coverage for handling customer service issues. Ally Bank, for example, operates its live customer service line 24 hours a day, 7 days a week. In the same way that debit and credit card usage has been replacing cash transactions, online banking presents a quicker and easier alternative to doing things that once required a significant investment of time from customers.
Expanding Accessibility to ATMs and Live Service
Perhaps the most obvious disadvantage of online banking is the lack of physical service locations, not only with branches but with the network of ATMs most people rely on for access to their cash. The response of online banks has been twofold. First, their increasing investment and membership in third-party ATM networks like Allpoint enables them to provide no-fee ATM service on a national scale, with no need to build up their own physical networks.
Second, by growing their online presence and providing convenient access to service by phone, online banks seek to compensate customers for the inability to meet a banker in person. As customers make the shift from a mediated banking experience to one that takes place with their direct participation, the perceived inconvenience of online banking should give way to the realization that taking your money online adds more utility than it sacrifices.