Web-Only Banking – Advantages and Disadvantages

web-only banking

Keyboard with Fast Online Banking keys highlightedMost American banks offer online banking services, but now there are banks that exist only online, and you get a good many of the services offered by traditional brick-and-mortar banks. You can scan and deposit checks and transfer funds at any time, and on any day of the year. There are savings, checking, and money market accounts available, as well as CDs, retirement accounts, educational savings plans, loans and mortgages. These “online only” banks offer free transfers, online bill pay, mobile banking and telephone banking. The question is: Are they a good place to put your money? There are advantages, and disadvantages.

In the busy 21st century-world we live in, one advantage is pretty clear: with a “web-only” bank, there is no waiting in line for a teller. Online only banks give you 24-hour banking at any location you choose. All you need is a computer, tablet, or smartphone connected to the internet. Without the need to physically make a trip to a bank branch, you save money in terms of gas and time. After all, time is money too.

Some people simply never visit the brick-and-mortar locations of their current banks, because they have no need for the extra banking services available at those physical bank locations. Many workers have their paychecks direct-deposited, and any other checks received can be deposited via automated teller machines (ATMS). Most online banks offer ATM debit cards to use free in a large network of ATMs. Some even reimburse ATM fees, if you use one outside the bank’s network.

As with physical banks, a customer must make sure a web-only bank is also FDIC insured (the FDIC website has that information). That means the government guarantees your money for as much as $250,000, if your bank fails. As another security feature, web-only banks need to have proper encryption standards to keep your accounts secure. Websites that start with “https” instead of just “http” utilize a more secure encryption method and usually display an icon such as a padlock to indicate their safety standards. There are scammers who try to impersonate authentic online only banking websites with fake but realistic-looking websites. But then again, scammers try to impersonate brick and mortar bank websites too. You must continue to be personally cautious whenever you conduct business online.
Keyboard with Fast Online Banking keys highlighted
As a result of very low overhead and operating costs, most web-only banks also have very low fees, or charge no fees at all. Online only checking accounts are often interest bearing accounts and once again, do not charge unreasonable fees. The best online banks offer physical checks and overdraft protection. Some have minimum deposits to open your account and you must maintain a minimum balance, but those that require higher deposits generally offer higher interest. They all charge overdraft fees, so if you tend to write checks beyond the amount in your account, look for a bank with a low fee. Be sure to read the fine print on fees and disclosures. It’s important to look for hidden fees and other catches that can cost you more.

Online only banks can offer competitive and even higher interest rates than your local bank branch. One comparison showed a regular savings account earning an average 0.26% annual percentage yield (APY), compared to an online bank account earning 0.75% APY.

Because they don’t have to pay employees in their physical locations, many web-only banks have increased the number of employees staffing their live chat, telephone and email support services for personal assistance.

There are a few disadvantages, however, and one of them involves cash. ATMs have limits on the amount of cash deposited or withdrawn, and they don’t accept coins, if you ever have a piggy bank to empty. More cash is of course available to you at a teller’s window, along with any specially ordered checks such as cashier’s checks or money orders, albeit sometimes with extra charges. On occasion you may also need a notary, or a signature guarantee, which an online only bank cannot provide. Therefore, the recommendation is that you keep your current bank account in addition to a new online-only account in order to take advantage of the extra services at your local bank.
Look at sites such as CapitalOne360, and see what’s new in banking.

Note: The opinions voiced in this material are for general information only and not intended to provide specific advice or recommendation for any individual. Please remember that past performance of investments may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this newsletter (article), will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this post serves as the receipt of, or as a substitute for, personalized investment advice from Vermillion Financial Advisors, Inc. To the extent that a reader has any questions regarding the applicability of any specific issue discussed within this newsletter to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. A copy of our current written disclosure statement discussing our advisory services and fees is available for review upon request.

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