What comes to mind when you think of a bank?
Probably a lot of people in tailored suits walking around a way-too air-conditioned building—or, at least, that’s what I think of. Banks can be intimidating places but not just because of the chilly air. Big banks often have many fees associated with them such as account opening fees, high minimum balances, and lower interest on savings accounts.
But you do have options outside of the big banks: online banking.
Selecting the institution where you house your money is an important decision, and online banks are an option you might want to consider depending on the benefits they provide. Let’s go over what online banks are, and how you can use them to help achieve financial success.
What Is Online Banking?
Online banking is exactly what it sounds like, banking that is completely virtual. Online banks have gained a lot of momentum over the last decade and now over 60% of account holders do at least some of their banking online, according to the 2017-2018 FDIC report.
It’s important to note that there is a difference between online banks and online capabilities. Many traditional banks are offering their customers virtual features such as the ability to make transfers, deposit checks, and keep up with their account status. But these features don’t inherently make them an online bank.
Online banks such as Ally, for example, operate solely online where all interactions are done virtually or over the phone. There isn’t a storefront where customers can go in and speak with a representative face-to-face. This offers customers many advantages and disadvantages.
The Pros and Cons of Online Banks
Online banking is quickly becoming a popular method of banking and it is easy to see why. The benefits that online banks can offer their customers is really wonderful and leading many to switch.
But online banking is often misunderstood as being less safe and secure than its traditional counterpart. It is important to know that online banks are subject to the same rules and regulations and are also federally insured. Now, let’s look at some of the benefits of online banking.
Better Interest Rates
Since online banks have less overhead, they are able to offer their customers much higher percentages on their accounts, some even at 1% or 2%. They are able to offer high-yield savings accounts and certificates of deposit (CDs) at better rates with lower fees which really adds up over the years. Ally, for example, offers a 2.1% interest rate on their savings accounts which helps your money grow faster.
While traditional banks often offer online features, their sites aren’t typically as user-friendly as fully online banks. Since they operate completely virtual, their online experience is easy, efficient, and user-friendly. Because it has to be.
This is a big one. It can be difficult to find time to make an appointment and get into a bank when you need something done. With an online bank, you’re able to access your account wherever there is internet, making it much more simple to complete transactions.
Lack of Relationships
With an online bank, it’s not as simple to cultivate relationships with your bankers as it would be if you went in and saw them every quarter. Many people enjoy the in-person interactions and relationship building aspect of traditional banks, especially if they are having a problem or concern with their account.
Sometimes it can be difficult or cumbersome to deposit checks online and nearly impossible to deposit cash. It’s important to check on the bank’s specific policy so you are aware of how they want you to handle deposits remotely.
Online banking has many positives, ones that for most people are outweighed by the negatives. Their ability to offer higher interest rates with lower fees is a great way to set you up for financial security and success.
Online banking can also help you build up an automated personal finance system to keep you organized and motivated in your savings journey.
Online Banks and Automation
Automation is one of the most important steps toward financial success. Automation can help you stay on track with your savings goals, ensuring you don’t miss a payment or deposit. Online banking is a great way to help you set up an automated personal finance system.
This system could look a little something like this:
- Automated debt repayment
- Savings (stored in a high-yield savings account)
- Automated bills (utilities, rent/mortgage, internet)
- Checking account
Creating a healthy, automated system is going to help you stay on track to meet and surpass your financial goals. Your goals are my top priority. I love working with people to help them find security, confidence, and success in their financial lives.
Interested in how online banks can help maximize your savings? Schedule a call with me!