Chances are, you’re managing money differently today than you were a few years ago. If your shopping, spending, and money management have moved online and onto your phone, you might want to consider whether an online-only bank is a fit for you. At a traditional bank, fees and interest charges support retail branches and other services you may no longer want or need. Online-only banks don’t have retail locations. Instead, they home in on providing online loans and accounts with great rates, low fees, and the digital features that make managing money easier now.
Would an online bank work for you? Read on to learn more about the benefits of online banking.
When the country went into COVID isolation in 2020, moving money online and by mobile app instantly became a preferred option. Bank branches closed, temporarily. Using your card inside a store or restaurant became a rare occurrence. Meanwhile, apps and online transactions took over much of our daily commerce, as many of us took to ordering food delivery, home supplies, streaming entertainment—just about everything—on our computers and mobile devices.
Managing money online became a primary way to transact during COVID lockdown. How many of these digital money moves do you recognize from the pandemic?
More than two years later, these digital habits have taken root. For many of us, managing money online or by phone is now the default. You may reflexively check your real-time account balance before making a big purchase. You receive text alerts that remind you to pay bills. You use an app to pay a babysitter or split a check.
Now that your relationship with money has gone mostly digital, how well does your bank support that relationship? If you’re not sure how to answer, you might want to look into an online bank.
Online banking is what you do whenever you use a bank’s website or mobile app, but it also refers to a type of bank that focuses on digital banking. Online-only banks don’t rely on retail locations to serve their customers (or members). How does online banking work? Just about everything happens online or by mobile app. You can:
Online banking isn’t new: People have been using their bank’s websites to view accounts since the 1990s and mobile banking apps have been around for more than a decade. But online banks are taking digital banking to a new level by changing the economics of financial services.
Branch locations cost money to operate. So do other trappings of traditional banking, like paper statements. By focusing on the key digital banking features consumers want, and ditching legacy features that drive up overhead, online banks can provide a great digital experience while keeping costs low.
These savings translate to competitive rates on loans and savings, or rewards checking accounts without maintenance fees—to name a few. You won’t get a nicely decorated branch to visit, but you will get the convenience of a bank that never requires you to visit a branch. And with less overhead, you may pay less and receive more on the loans, checking, and savings accounts you want.
When you shop for a bank online, you’ll find a wealth of options. But not every bank you find online is an online bank. Some, like credit unions, aren’t banks at all. Here’s a quick rundown on three common types of financial institutions:
Traditional banks deliver a familiar mix of checking, savings, credit, and loans. Expect to find a network of national or regional retail branch locations, branded ATMs, online banking, mobile apps, and telephone-based customer service. Although banks can range from small community banks to nationwide megabanks, banks on the whole are full-service operations—a good place to look when you need a cashier’s check or safe deposit box. They’re also for-profit companies with profit margins to manage and shareholders to answer to.
Credit unions offer many of the same products and services as banks, but with a member-based business model that is not-for-profit. Rates and fees are typically competitive, and personalized service is a hallmark. Credit union membership is often based on where you live or work. You can go to mycreditunion.gov to find credit unions you are eligible to join. Expect a range when it comes to digital experience: Some credit unions are tech-forward while others are a few steps behind.
Online banks center on digital experience instead of maintaining branch locations or their own network of ATMs. Online banks typically offer lower rates and fees on loans and higher interest on checking and savings and have strong mobile apps and customer service features. As an example, Rewards Checking at LendingClub Bank pays cash back rewards on Qualified Purchases using a debit card tied to Eligible Accounts, no maintenance fees, and no minimum balance requirements (aside from $25 to open the account).1 Like traditional banks, online banks are regulated, for-profit companies with profit margins and shareholders to manage.
If you’re comfortable managing your money digitally, an online bank may give you a better deal on basics like checking, savings, and loans. Because online banks are built to function virtually, they’re invested in offering technology that works. Of course, you should check out any bank you’re considering individually, to make sure they have the accounts, features, and competitive rates you want.
Some people prefer banking face-to-face. You might use in-branch services frequently—for example, if you own a small business and make regular large cash deposits. Maybe you’ve developed personal relationships with the people at your bank branch, and that gives you a sense of security and belonging.
On the other hand, maybe you haven’t seen the inside of a bank branch in years. Maybe you only go grudgingly, when you can’t accomplish what you need online or at an ATM. Maybe your branch is now populated with automated tellers that handle tasks efficiently but can’t deliver a personal touch. Only you know whether you really need a branch to manage your money comfortably and effectively.
Online banks that are insured by the Federal Deposit Insurance Corporation (FDIC) offer the same protections as traditional banks. The FDIC insures up to $250,000 per depositor, per bank, for each ownership category including single accounts, joint accounts, trust accounts, and so on. Credit unions have similar insurance through the National Credit Union Association (NCUA).
Wherever you bank, online security is a serious concern. Card-not-present (online) fraud is rising; security features that protect your account data and identity are a must. Look for security tools like single-use passcodes and biometric (face ID or fingerprint) identification that works with your phone. Online banks are constantly improving security technology to stay ahead of fraud. Avoid public Wi-Fi when you’re banking or shopping. Seek out and use your bank’s security features to keep your data as safe as possible.
One of the best reasons to consider an online bank is their range of convenient, money-saving products and features. Here are nine useful items you might find at an online bank:
In a post-pandemic, digital-everything world, an online bank can provide you with the loans, checking, and savings you want, with lower costs and a higher upside. If you already manage your finances in the digital realm, choosing a bank that does everything online and by app might not require much adjustment. Choose the right banking partner (or partners), plug in, and enjoy the benefits of banking online.
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