Is your primary bank account with a “traditional” bank, meaning one with old-fashioned branches where you can still do business with a teller? And do you sometimes get sick of all of the rules, regulations, and fees associated with your traditional bank? And have you thought about moving your bank account from your traditional bank to an online-only bank? Perhaps your hipster children are encouraging you to do so, or perhaps a slick television ad for an online bank has caught your eye. You would not be alone, as online banks are growing. However, if you are considering such a move, there are several issues you need to consider and to research thoroughly before you join the 21st Century and move your bank account online. Consider these issues:
How Do You Bank Now?
The first thing to consider is, How do I do my banking now? Do you have online banking through your existing bank so that you don’t have to write checks by hand? Do you go into the branch a lot? Or do you do everything at the ATM? Do you have multiple accounts at your current bank – such as checking, savings, and mortgage – and do you avoid fees by having all of those types of accounts at the same bank? If you don’t go into the branch very often, then perhaps an online bank can work for you. Let’s say you need to send money via a wire transfer, which most likely you would need to go into the branch to transact. Make sure your new online bank can do wire transfers, and what the cost of it is. Also, if you like paying bills online, make sure your new online bank can accommodate bill pay. Most do, but check to make sure before you make a decision.
FDIC Insurance
Make sure your online bank accounts are insured by the FDIC. Most online banks are FDIC-insured, but make sure of it. On the other hand, I think FDIC insurance is overrated, which is apostacy for a Financial Planner to say, but that’s my belief. When is the last time a bank failed and its depositors were paid out only to the extent of its FDIC insurance? Brokerage accounts are not FDIC insured (although most are SIPC insured), and investors don’t seem to have a problem with having millions of dollars on deposit with brokerage firms. FDIC insurance is a topic for a separate blog. That all said, to stay safe, go for the online bank that is FDIC insured vs one that is not.
Fees
The main selling point of an online bank is very low or no fees. Because they don’t have the “brick and mortar” that traditional banks have, online banks’ fixed asset cost overhead is much lower, and so they try to pass that cost savings down to the consumer in the form of lower fees. Most traditional banks also have a no-fee option if you maintain a certain balance at all times in your account. If you don’t have the money to maintain the required balance, or if you have difficulty keeping track of your balance or don’t want to do so on a daily basis, an online bank may be for you. However, look at your online bank (before you move your account) and make sure you understand what fees are waived and what fees remain, and if it makes a difference to you based on the way you bank.
ATM Fees
Among these fees are ATM fees. If you are old-fashioned like me, then you like to carry around cash, and so you like to go to the ATM. However, I realize I am a dinosaur with this type of thinking, and that the hipster way to go is not to carry cash and to use your debit card instead. This has appeal because payment by use of a card is getting easier, and even more so in other parts of the world. Make sure you understand how your new online bank addresses ATM withdrawals. Such information is not easy to find and is sometimes buried in the fine print. My short bit of research led me to understand that most online banks allow you to use ATMs with no fees at some specific in-network ATMs, most of which are not located at traditional banks. For instance, ATMs that you might find inside drug or convenience stores may be linked to online bank ATM networks. If so, consider if you might want or need to access the ATM while the drug or convenience store is closed. Also, consider what happens if you want to do some international travel. Also, I noted that some online banks will reimburse your account for ATM fees that you incur by using out-of-network ATMs. One online bank does this up to $10 per month, which equates to about 1 ATM withdrawal per week. In our family, avoidance of ATM fees is an ongoing game, and we plan our cash needs while out-of-town or out-of-state just so that we can avoid paying ATM fees. This doesn’t justify the extra money on gasoline that we spend to drive out of our way to go to an in-network ATM, but that’s the way we roll. Before you choose an online bank, make sure you understand where you can withdraw your own money with out paying a fee to the bank to do so, and if that situation will work for you.
Top Online Banks
Some of the largest online banks are the following: Ally Bank, CapitalOne, SoFi, Charles Schwab, TD Bank, and Silicon Valley upstart Chime Bank. Google “online bank” and see for yourself. Do your homework before you make a move.
IMO
Once you have done your homework, go back and compare what you found with your current bank, and consider what other options your current bank might have if you change the type of account you have. Traditional banks are well aware of the competition they have with online banks and many traditional banks have adapted their account regulations such that they are very similar to online banks. You may find that it is better for you to avoid the hassle of changing banks and instead to remain at your current bank. Then again, if you are as upset with your current bank as I know some people get, then go fully online, as long as you know what you are getting yourself into.