An online bank is much of what it sounds like. It is a bank (in most terms that we classify the “normal” banks) that you access and utilize online. This along with the fact that they probably don’t have a local branch anywhere near you is why they’re deemed an “online” bank.
This isn’t to say that these banks don’t have any buildings whatsoever, it just means that there isn’t a local branch that you can go visit whenever you’d like. The fact is that most of them do have buildings – somewhere – for their corporate headquarters, customer service reps, and IT departments.
While the majority of banks throughout the country offer online “access” to your checking and savings accounts, this doesn’t classify them as an online bank.
Online banks, such as Ally Bank, are continuing to grow in popularity, and these are the same reasons you should consider one as well:
So, why can online banks offer better fees, rewards, and interest rates than their local or BIG counterparts?
Well, there really isn’t any other explanation other than the fact that they don’t have the massive over-head that having a local branch(es) entails.
By saving on loan/rent payments, taxes, utilities, upkeep that normal “brick-and-mortar” buildings require, along with saving on the salaries to staff those facilities, online banks are able to save tremendous costs that they can pass back to the consumer.
If online banks are so great, why isn’t everybody using them?
Well, for starters there is a lot to be said for being able to go and talk to somebody at your local branch.
While this concept is foreign to younger Americans, it is very much a vital factor for the older generations. I even have some thoughts about online banks being a scam or ‘running away with my money.’ For no other reason then I can’t actually see their building.
Regardless of how you think about it, there is definitely a comfort level with seeing the place that “your money is being held.” I put that in “” because your money isn’t really held there. Banks are only required to keep a very small percentage of their assets at their local branch. The rest gets loaned out or shipped to a reserve.
What are some of the other drawbacks to online banks?
That’s obviously up to you.
Personally, I have 4 different bank accounts: (1) Primary checking, (2) Non-Monthly Expenses, (3) Emergency Fund Savings, and (4) a Business Checking Account.
My business checking and primary checking are at online banks (separate), while my non-monthly and emergency fund accounts are at a small, local bank.
The decision for me was easy: the gain I receive in rewards, higher interest, and lower fees far outweigh the difficulty of sending a deposit via overnight mail that’s paid for (once again, if you have direct deposit then this won’t even matter for you).
The important part is that you weigh each pro and con and determine what fits your priorities the best. I place a high value on getting money/rewards back – especially in my business account!
Why get nothing back when I can earn hundreds over the course of a year? Just because the bank has a branch I can go visit?
Picture by gemalto_photos.
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