Online banks are not recent evolutions in the financial world, with humble beginnings starting in the early days of the internet around 1995. Today, using an online bank is universal and widely popular.
We’re speaking of internet banking, with all the product and service found in traditional banks, but with much of the overhead removed. Internet-only banking is the marriage of cloud computing with high-tech efficiency. It delivers a transparent super-charged system of personal money management.
A word to the wise, here, it’s not the same as using your traditional banks e-commerce or mobile services. The online bank experience has advantages not matched by the traditional banks with their widespread physical presence and higher operating costs.
Savings account balance requirements are rather friendly with online banks. On average you only need a balance of $350 or higher with online banks before service fees kick in.
Traditional banks average $4,500 minimum balance to get out of fee charges. My personal bank requirement is $3,500. A $12 per month fee applies if the balance drops below $3,500, even if for one day.
Beyond lower fees, interest rates paid by online banks are higher. The four largest brick and mortar banks in the U.S., all with worldwide presence, pay 0.01% annually compared to 0.95 – 1.00% with their online siblings.
Framing this in real dollars, $10,000 in a savings account at 0.01 percent interest will earn a whopping $1 after a year. However, $10,000 at 0.95 percent will yield $95 in interest. That’s $94 extra dollars before the power of compound interest growth kicks in.
You can open most checking accounts with $0.00 – $50 at internet-only banks, and account fees are generally lower than store-front banking. Often, standard checks are at no cost, plus free re-orders are common.
Other bank assessments like overdraft fees, transfer charges, and special service costs are lower, too. There are some online banks that charge nothing for overdraft transfers, ACH transfers and cashier’s checks.
No doubt ATM service is a must in banking and lets traditional banks run with a smaller footprint. While online services can’t top the corner bank for branded ATM locations, they do offer a functional alternative.
Allpoint ATM network is predominantly used for automated teller services by online banks. Allpoint ATM has 55,000 free for use ATM’s in North America in retail locations like CVS Pharmacy, Target, Costco, and others. Some internet banks will reimburse for fee’s charged at non-network ATMs as a way to offset site limitations.
While this is a bit tricky for some people, depositing money into an online account really isn’t difficult. As with local banks, you can easily deposit checks or cash into a network ATM.
Using a mobile banking app, deposits are possible from anywhere and at anytime, as long as a wireless network is available. Mobile deposits are as simple as snapping a picture of a check. The bank app records the deposit directly into your account.
Moving funds between accounts and transferring funds outside the bank system are just as convenient. Direct deposit of paychecks is straightforward with the app, too. It’s no surprise that brick and mortar banks have moved into the mobile app arena.
Security always seems to come up when internet and cloud computing is the topic. I won’t say much about this other than data theft is a problem, but no more so whether with an online bank, private company, physician’s office, or any business that stores data electronically.
This is scary to a lot of people, but I can tell you that banks with physical buildings don’t offer any more comfort. Their data storage is cloud centered and transactions are electronic data transmissions.
Financial institutions ranging from Federal facilities, to Wall Street institutions, to local banks house our personal information in big data centers. In fact, data center companies are a huge business sector in America. While cyber security is a serious issue, it is not any greater issue with an online bank than the bank down the street.
The comforts found in a traditional bank are still important to a lot of people. Face to face contact is still a need at times, and traditional banks beat in areas such as loan officer availability, brokerage services, real estate & mortgage specialists, and other professionals.
But, it also comes down to the fact that brick-and-mortar branch banking carries a lot of costs, with the greatest being physical buildings and staff. This overhead passes straight to customers through fees, charges, and low-interest rates.
Online banks are cheaper to run because they don’t have buildings to keep up nor large staffing needs. You can do everything done in traditional banking, but with efficiency, lower cost, and higher earnings return using an online bank. With the online bank, it’s all about low fees and higher interest rates.
For many people, online banking is not the best option. For others, however, mobile app’s, cloud technology, and mobile communication are second nature in their lives already. The online bank could simply be an extension into their current virtual world.
I have been an active investor for over 35 years. My investments have always been self directed. I favor value stocks with dividend growth and income potential. My tendency is to hold long positions in equities qualifying as Dividend Aristocrats.
The Seeds To Harvest personal blog came out of a lifelong interest in personal finance. This interest has led to teaching community classes to a variety of groups. Retirement activities include travel and volunteer site coordinator with the VITA Tax Program.
Investment experience in Equities-REITS-Oil & Gas Royalties-Utilities-Varied Fixed Income.