What's Up With Online Banks?
Online banking is normal these days.
Most major banks have apps or websites that allow you to transfer funds and manage your account without ever going into a branch. But what about the new generation of online-only banks that seem to be popping up? Can you be a reliable bank without brick and mortar locations? Let’s explore the world of online banks and some pros and cons.
How do online banks work?
Online banks and physical banks have a lot in common. They’re both places that store and protect your money. They both loan out your money for a profit. So what’s the big difference?
For one thing, banks with brick and mortar locations have high overhead. They may pay rent on properties, maintain buildings, hire managers to operate locations, and pay tellers to serve customers. Online banks typically have drastically lower upkeep costs. Sure, you need to pay developers to keep the system running smoothly and securely, but it’s generally much lower compared to the costs of maintaining physical locations.
So what do those differences mean for you, the consumer? Banks with physical locations will pass on their location upkeep expenses to you, the customer. That means they’re more likely to charge you for opening an account, give you as little interest as possible, and crank up rates on loans for houses and cars.
Online banks aren’t weighed down by those physical locations. They have fewer expenses and don’t have to charge you as much to make ends meet.¹ That means you might get significantly higher interest rates on your savings accounts. They also tend to lean less on fees than traditional banks.²
But there are some drawbacks to using an online bank. You might find withdrawing cash without paying ATM fees more difficult than before.³ Depositing cash might also take some more leg work and research.⁴ Customer service can’t be handled in person so problems must be solved via phone or online chat. Plus, safety deposit boxes are harder to come by with an online bank. In short, many of the old school conveniences just aren’t provided by the new generation of online banks.
It’s important to weigh the pros and cons before pulling the trigger and opening an account with an online bank. Trying to make more with your savings account? You may want to investigate banking online. But if you’re on a strict cash diet to avoid excessive spending, a traditional bank might have some classic services that will come in handy. Talk with a licensed financial professional before you make the decision.
¹ “What Is Online Banking? Definition, Pros and Cons,” Amber Murakami-Fester, Nerdwallet, Mar 25, 2021 https://www.nerdwallet.com/article/banking/pros-cons-online-only-banking
² What Is Online Banking?” Murakami-Fester, Mar 25, 2021
³ What Is Online Banking?” Murakami-Fester, Mar 25, 2021
⁴ What Is Online Banking?” Murakami-Fester, Mar 25, 2021