You may already be familiar with the concept of online banking, which many physical banks offer. An online bank, however, is exclusively online, with no physical branches to visit. Customers do all bank interactions online. Online banks provide the same security and money management you’d find in a physical bank branch, but you get the added convenience of handling everything on your phone instead of having to drive and walk into a bank.
Even with this convenience, some people may still be wary of managing one of their most important assets (their money) completely online. Only 28% of people have opened a bank account digitally. Security concerns and slowness to change are the main reasons for the low number. But for people who do open an account online, satisfaction rates are very high, at 85%. And the idea seems to be gaining steam, as 53% of retail banking customers in 2019 used mobile banking, according to a report by J.D. Power.
Like all industries that are being disrupted by technology, online banking is becoming more popular. New online bank providers are constantly emerging. There are dozens of options for managing your money online today, including Ally, Capital One, Discover, Betterment, Chime and SoFi. If you’re contemplating online banks and wondering how to switch banks, we’ve got answers. Here are some benefits to online banks.
1. Higher interest yields on savings accounts
A major perk of online banks is that you can earn more money on what you deposit. Online banks don’t have overhead items like physical branches dot, so they can pass on those savings to online bank customers.
Let’s look at a comparison of what you can earn with savings accounts with a traditional bank versus an online bank. For Bank of America, the standard annual percentage yield (APY) for a savings account is 0.03%. For online bank Ally, the APY is 1.7%. In one year with a $10,000 savings account at Bank of America, you’d earn $3. Compare that to earning $170 with Ally. And then factor in compounding interest, and over time, you can earn much more with an online bank. APY numbers like these are pretty consistent for traditional banks compared to online banks. Savings accounts at online banks sometimes accrue interest at a rate as much as 20 times higher. While large, traditional banks with physical locations may provide an APY as low as 0.01%, some online savings accounts have APYs up to 2.3%. Compounding interest over the years can result in a savings difference of thousands of dollars.
2. Higher customer satisfaction
Being able to interact with someone in person doesn’t necessarily equate to better customer service. The J.D. Power 2019 Direct Banking Satisfaction Study found online banks perform better in every single comparable factor.
Online banks put the power of banking in your hands, all the time. Non-money related issues, like a long wait time in line at a bank or an inconvenient location, can also negatively impact customer satisfaction for traditional banks.
3. Fewer fees and minimum deposits
It’s common for traditional banks to require a minimum deposit and minimum monthly balance on savings accounts to avoid maintenance fees. Online banks, on the other hand, often have no required minimum balance and zero fees. While this may save you just a few dollars a month, this can add up to a noticeable difference after a few years of holding an account.
Another fee you can usually avoid with an online bank is foreign transaction fees. Online banks provide global services to any online user, so it makes sense you wouldn’t have to pay a fee to make purchases as you travel.
4. Unique bonus perks
To disrupt traditional banking models, online-only banks provide unique perks that reward you as you save and spend. With some online banks, you can automatically save in stock markets and invest in the companies you purchase from. Other online banks enable you to segment your savings in categories or get paid earlier and convert cash among international currencies. Check out these features.
Get paid faster
Did you know that your employer is usually sending your payment around two days earlier than you’re actually getting it? For example, if you get paid every other Friday, your employer is usually transferring your funds the Wednesday before. It takes a couple of days to get paid with traditional banks as they process your payment. With online banks like Chime and N26, you can get paid up to two days earlier with direct deposit.
Personalize your savings goals
You might be saving for a lot of small and big purchases, like a house, a computer, a wedding or a vacation. N26 provides a feature called Spaces, which enables you to visualize your financial goals and separate your savings into categories.
This way, you can deposit your earnings based on what you want to save for and hold yourself accountable as you save.
Separate savings based on currency
If you travel often or split your time between countries, you can save money with an online bank that provides affordable multi-currency capabilities.
One online bank option for this is TransferWise. You can segment your savings based on more than 40 currencies and then use the TransferWise debit card for up to four times the amount of savings compared to other cards. Plus, there are no foreign transaction fees or monthly maintenance fees. You can also save on ATM fees for up to $250 every 30 days.
Whether you’re looking for different benefits for using your debit card or you want to optimize how your savings account works for your unique needs, you have lots of innovative options with online bank offerings.
5. You don’t need a physical branch anymore (we promise)
Unless you like standing in line with lots of other customers and waiting for a turn to talk to a teller (who may or may not be having a bad day), there’s no need to have to drive to a physical branch, find a parking spot and walk in and wait to handle your money.
Most online banks are part of ATM networks like Allpoint, which has more than 55,000 locations around the world. This enables you to deposit or withdraw cash when you need to, at a location that may be closer to you than where a physical branch would be.
You’ll be able to make a certain amount of ATM transactions (sometimes unlimited) for free with an online bank. You may also be able to get reimbursed for a certain number of ATM withdrawals for out-of-network ATMs. That means you can still manage your physical money even when your bank is exclusively online.
How to Switch Banks
Opening up an online banking account is simple. You can do it on any connected device, from a desktop computer to a mobile phone or tablet. Online banks usually provide online chat options, so you can talk with a representative as you’re opening your account.
You’ll be asked to fill out some personal information, like your Social Security number and address history. In many cases, you can be approved for your account in less than a minute, immediately after you apply.
To fund your new online banking account, just transfer existing funds from another account into your new one. Or, you can deposit checks from your phone or set up direct deposit through your work.
It’s entirely possible to keep an existing account if you still want the option of having a physical bank and real people to talk to. You may also be someone who wants access to your money from multiple locations, so opening an online bank is a way to diversify where your money is held.
The Final Word
Online banks are convenient, secure and sensible. You don’t need a physical branch to go to anymore. With ATM access, high-yield APYs, better customer satisfaction, bonus perks and lower (or zero) fees, online banks provide a great way to manage your money.
Online banks are newer than traditional banks and need to present a way to stand out and attract new customers. You can take advantage of the competition for your business by comparing the perks online banks offer and choosing ones that help you grow your money through investments, get paid faster, save on international travel and work towards your savings goals.