DeSERANNO News

Vol. 10, Issue 10February 2019

FINANCIAL ARTICLES

Online-Only Banks

Once upon a time, the local bank was the centerpiece of personal and commercial finance, the place you went to deposit money, get cash, or get a mortgage or loan. Later you could do most of those things online if you did not want to go to the physical bank. Now, a growing number of banks exist only online, without any bricks-and-mortar buildings. Should you take a harder look at these online banks?

The first question most people ask when considering the switch is whether their money is safe in an online bank. You might be concerned not just about bank robbers, but also about cybersecurity.

Deposits in most online banks are covered by the Federal Deposit Insurance Company up to the FDIC limit, just like physical banks. Most online credit unions are insured by the National Credit Union Administration. You should not deposit money in any institution that is not FDIC- or NCUA-insured.

You also should understand what kind of cybersecurity the bank uses. The same security concerns apply if you bank online at a bank that has physical buildings. And as with any online transactions, you should be careful to protect your password and not use public computers to log onto your bank.

In that way, online-only banks are much like traditional banks. But according to the website NerdWallet, there are some pros and cons. The pros include:

  • Online banks usually offer higher interest rates – often substantially higher – on deposits to checking accounts, savings accounts, money market accounts, certificates of deposit, etc.

  • You can do your banking anytime, anywhere that has an Internet connection as long as you have a computer, tablet or smartphone. (Of course, this also is true for the online banking services of traditional banks.)

  • Most online-only banks will reimburse you for fees you incur at other banks’ ATMs. This can substantially widen your options for free ATM usage.

    The cons include:

  • You can’t talk face-to-face with a physical person. Online-only banks generally offer 24/7 phone or online assistance, but if you want to talk to someone in person you need a physical bank – and it has to be during regular banking hours.

  • Some online-only banks do not offer checking accounts.

  • It is hard to deposit cash in an online-only bank. If you bank at a traditional bank as well as an online-only bank, you can deposit your cash there and then transfer it electronically to your online-only account. But if you don’t have a traditional bank, you face challenges with cash.

    In the end, whether you should use an online-only bank comes down to what matters most to you. Are higher interest rates more important than face time with a teller, for example? Do you regularly handle a lot of cash in your business or personal life, which could make it more convenient to use a traditional bank? And of course, you can have accounts at different banks, letting you meet a variety of needs.

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