Online banks, also referred to as internet banks or digital banks, are becoming increasingly popular. Higher interest rates, online bill pay and account management, and no fees are just some of the benefits of having an online bank account. We’re not talking about accessing your Wells Fargo account online; we’re talking about dot com banks like American Express, Ally and Barclays. The CGS Team is giving you the skinny on these banks and why you should jump on the online bank bandwagon.
What is an Online Bank?
As the name suggests, an online bank is a bank that is internet-only based. There are no actual brick and mortar locations. An online bank functions exactly the same as a storefront bank. It allows you to keep your money in a checking or savings account with the bank. You have the option of checks, debit cards and online access.
What are the Benefits of Online Banks?
Interest, interest, interest! The biggest benefit you can get from an online bank account is the interest that it pays. Since online bank accounts don’t have the cost of actual branch locations, they can afford to give their clients much more bang for their buck. The average interest rate of online banks is 3.30%, as of 2023.
That is significantly larger than the .05% offered at the common banks like Chase, Wells Fargo and Bank of America. It is also still significantly larger than the .30% offered at most credit unions. It you don’t understand the benefits of interest, check out the Finance 101: Compounding Interest article to see how interest can really work in your favor.
Other benefits of online banks are that they charge no fees for deposits, transfers or general account maintenance. There are also no minimum balance requirements. This allows you to keep your money, however big or small, in the account without worrying about the bank slowly eating away at it with fees. Online banks also offer 24 hour customer service support. While you can’t visit with someone face-to-face, you can give them a call at any time of the day.
What’s the Catch?
We’ve given you the benefits of online banks, so now you are probably wondering what the catch is. Like we mentioned earlier, online banks don’t offer a personal connection with their customers. You don’t have the option of walking into a branch and talking to someone. Some people prefer to have that personal relationship.
Another downside of online banks is that they have limited ATM networks. This means that if you have to pull cash, you will be paying for ATM fees. Since online banks are ultimately used to grow savings with interest, there shouldn’t be a need to pull cash. If you need cash, you have the option of transferring to a normal bank. Keep in mind that these transfers can take up to 3 business days, so if you are in a hurry this may not be the best route.
You are probably thinking about the security of an online bank. Well, most online banks are FDIC insured like regular banks. The best way to determine the security of an online bank is to confirm that it is FDIC insured. While online banks are subject to cyber-attacks, as with any website, departments are in place to make sure any money taken from you is returned.
Which Online Banks are the Best?
If you are ready to start growing your savings at the highest rate possible, then an online bank is a great way to go. There are plenty of options to choose from when selecting your online savings account. Here are some of the most popular online banks:
3. American Express Bank
4. Marcus Goldman Sachs
Related: Best Savings Account Interest Rates
Would you be willing to try an online bank or do you already have one? What are your experiences, good and bad, with online banks? Share your thoughts with the community by leaving a comment below. Your comments may help someone in their search for their first online bank account!