Technology has made our lives easier and vastly different from even ten years ago. Online banks have been around for quite some time, and the advances in our phones and other devices makes it even more convenient.
Even banks that have had physical branches are bringing banking to areas through a digital-only channel. We're getting used to getting our banking services through online banking and mobile apps. If you're finding yourself relying on using your devices for your banking needs, then it's probably time to consider moving to an online bank.
There are a couple things you need to keep in mind before making the transition so you're ready for the tradeoffs.
Cons of online banking
This is all going to depend on the bank you go with, but without a physical branch to go to, putting money into your account can be more difficult. You could be able to make your deposits through mail, wire transfers, or an eDeposit. With an eDeposit, you can take a picture of the check on your phone and have it uploaded to your account through a mobile app.
Depositing cash can also be a very cumbersome process with an online bank. You've only got a few options.
You can keep an account at a bank with a local branch. You would then make cash deposits into that account and transfer it to your online bank account. Another option is getting a money order. You can then deposit the money order like you would a check (just make sure your online bank has the electronic scan feature). Some online banks also link with other financial institutions and allow you to make deposits at their ATMs.
You will also want to check their policy to depositing cash to see if there may be other strings attached.
Your service will not be as personalized
Going into a branch you can really get to know the people who work there and build a personal relationship with them. Customer service through an online bank is going to occur either over the phone or online. If you happen to come across a problem with your account or need some advice, you're not going to get that face-to-face interaction with someone who may know your banking history. Some people may put this one in the "pro" column, but if you enjoy that type of interaction and relationship building then online banking might not be for you.
Technology may change more frequently
Online banks will focus on creating the best user experience for their customers, but they can still take some time to adjust to. They may make more changes on a regular basis to improve navigation. That could cause you to have to learn how to use their website or mobile app all over again, and again, and again…
Online Bank vs. Fintech
Both traditional and online banks are subject to the same government regulations. Their deposits are also insured by the Federal Deposit Insurance Corporation (FDIC). This insurance for banks will cover up to $250,000 for every owner of certain accounts (checking and savings, as well as some trust and retirement funds) if the bank fails.
Fintechs, which is short for financial technology companies, have recently flooded the market with services that are very similar to what you get at banks through their websites and mobile apps. These Fintechs are not licensed as banks and do not have this FDIC protection if they fail.
They are also not regulated the same way as banks, which means they don't offer the same protections to consumers.
If you decide to use a banking or financial service through a Fintech, make sure you understand what your risks may be. An example of a Fintech is PayPal, which allows you send money to others through their platform.
Pros of online banking
Now that you know what you may be in for when switching to an online bank, you may find the pros outweighs the cons. There are a lot of great things that an online bank will provide for you.
Higher customer satisfaction
Last year's J.D. Power U.S. Direct Banking Satisfaction Survey found online banks received higher rankings than their retail counterparts. Online banks seem to have accomplished this through a 24 hour customer service accessibility, offering a great mobile experience, and competitive rates.
Get higher interest rates
Since they don't have physical branches, online banks have lower overhead costs. This often leads to them offering a higher interest rate on their checking and savings accounts, becoming even more attractive for customers.
Earning more interest on your balances will allow you to get more for your money without any extra work. You could be earning several times more of an annual percentage yield going online as opposed to a traditional bank.
More services at your fingertips
Mobile technology will allow online banks to do just about everything a traditional bank can. Whether its making a check deposit or transfers from other institutions, it's all available for you through their mobile app. If you need to make a withdraw, you can also do that using a debit card, ATM, or electronic transfer.
Making the leap into the digital age is really going to come down to you and your comfort with the change. If you aren't going to miss driving over to your nearest bank and prefer handling your finances at home or on the go, then switching over to an online bank makes the most sense.