We are all familiar with the traditional brick-and-mortar bank. You can open one of a variety of checking accounts and savings accounts, get issued an ATM card and checkbook (often with an additional fee). Want to make a deposit or withdrawal? Great, hop in your car and head over to the bank or maybe a nearby ATM and proceed with your transaction.
Services of online banks include most of the above minus the physical building of your local branch. All the transactions you wish to do can be done through an ATM or online from a computer or phone app.
The reduced overhead of online banks can benefit the user in several ways. To start, you often receive better interest rates on your accounts. You earn more money! The actual technology and online experience are usually very good. This is the way they differentiate from the big brick-and-mortar banks and is the only way to gain new customers. Phone and online based customer service is also quite good and it needs to be. Having customers feel confident that their money is in a safe place with easy access is key to the growth of the industry. And finally, most online banks have minimal or no fees for the honor of holding onto your money.
For many people, particularly those comfortable with technology and online services, this sounds like a very good trade-off. If so, consider some of the following to find the bank that’s right for you.
The interest rates should be competitive
Rates change almost daily, so when you check against other banks don’t be obsessed with getting the absolute highest rate. But it should be within .5% to 1% . Also consider the fees or lack thereof. If you get a rate a bit more than the competition but have to pay a recurring fee you may actually end up with a lower overall return. BankRate.com is a good research tool for this.
Check that the bank is FDIC insured. The Federal Deposit Insurance Corporation is an independent government corporation that will guarantee your deposits up to a total of $250,000 in the event of a bank failure.
It is often overwhelming but Google can be your friend. Search for online bank reviews and look at more than the first result. If you look at the banks own website for reviews, absolutely check several independent sources as well. If you have specific questions contact the banks your considering and see how they respond. You may try this with a question you already know the answer to. Compare the responses you get. Did they answer your question? Did it make sense? How long did it take?
What services do you need?
Most traditional banks offer a great number of services, many of which you will never use. Your account at these institutions help subsidize those services. Know what you need and keep these in mind as you search and compare banks. Do you need a checkbook? Most banks offer online bill pay. Where are the ATMs and are you allowed to go out of network without a fee? Do you need to connect with Quickbooks or another accounting service? Many online banks offer complete banking services through their phone app (including deposits).
Making the switch
Keep your old account open while you slowly move your money to the new online bank account. This is particularly important if you are currently auto-paying bills. You will need to transition all these and keeping the old account active will be helpful if you forget one. Some auto-paying may only occur every 6 months or possibly once yearly so carefully review your current setup. Transferring funds from your old account is done electronically. Use your new account to make the request and the money will move automatically.