We live in a world where customer experience is everything. And let’s face it, traditional banks don’t always offer the most ideal experience. Standing in line to cash a check is frustrating, and having to drive to a local branch to access your funds can be even worse.
In today’s highly digital world, it’s no surprise that online-only banks exist. But can these new banks be trusted? Here’s what you should know about digital banks, including the pros, cons, and risks to be aware of.
What is a Digital Bank?
As the name implies, a digital bank is one that operates entirely online. Digital banks don’t have brick and mortar locations. All monetary transactions are done online using your computer or mobile phone. This includes depositing checks, paying bills, and transferring funds. Whether you’re visiting family in Georgia or Yellowstone National Park, you’ll have access to your funds at all times.
There are many benefits to using a digital bank. One of the biggest perks of an online-only bank is that they very rarely charge any type of fee, and the offered interest rates are much higher.
Because online banks don’t have to pay the cost of maintaining brick and mortar locations, they tend to offer low or no fees at all. This means that you won’t have to pay an annual account fee or face a charge when withdrawing money.
Without having to set aside money for branch maintenance, online banks are also able to offer more favorable interest rates for consumers. According to the FDIC, the average interest rate on a traditional savings account ranges between 0.01%-0.09%. This means that most people are making pennies on their money.
On the other hand, online banks offer rates that are 20 times higher than the national average offered by brick and mortar banks. This means that you’ll make much more money by keeping funds in an online savings account. Some banks offer interest rates over 2%!
As long as you have an internet connection, you have access to all of your bank accounts and services. This means you can cash a check using your mobile phone or transfer money into a different account using your computer.
What’s nice about online banks is that they never close. This means no more last-minute trips to the bank, hoping to get there before the doors are closed for the day. It also means not having to deal with the frustration of short weekend or holiday hours.
Online banking is convenient, flexible, and allows you to keep total control over your money.
Just as traditional banks have to utilize certain security measures to protect your money and personal information, online banks are held to the same standard. When accessing an online bank, you can expect to be protected with various levels of security including:
- Fraud monitoring
- Two-factor authentication
However, keep in mind that your financial information is only as secure as you are. It’s important to make smart decisions when accessing your bank. This means not using public Wi-Fi, installing phone upgrades, and ensuring all anti-virus software is up-to-date with the latest version.
As you’d expect, there are also some cons of online banks. Despite our digital and advanced world, there’s often nothing more helpful than in-person assistance. There are sometimes situations where you want to talk with a teller in person. But with a digital bank, in-person help is extremely limited, if not non-existent. This means you’ll have to make do with assistance provided over the phone, by email, or chat.
The good news is that getting financial advice doesn’t require you to go to a bank. You can find dozens of financial professionals online. For instance, using any search engine you can compare the best financial advisors in your area to find the right one for your financial situation.
Depositing Cash Isn’t Easy
Cash still has its place in today’s world, despite debit and credit cards becoming the preferred payment option. With a traditional bank, it’s easy to deposit cold hard cash into your account. But with an online bank, the process is a bit more cumbersome.
To deposit cash into an online-only bank account, you have to take it to a traditional bank and transfer the money over, or you can take your cash to an ATM that accepts deposits. Another option is to turn your cash into a money order, which can then be deposited using the online bank’s mobile app.
Technology is never 100%, and with an online-only bank, there is always the risk of a technical glitch. This means that you may run into declined payments and issues transferring money because of an issue with the underlying technology.
Whether or not you can trust a digital bank is subjective. While all banks have their risks, there are many benefits that online banks offer that you won’t find anywhere else.