We are sharing with you some of the best reasons for using online banks that will surely change how you see it, and probably spark will to jump from traditional to online banking.
First thing first, there is a difference between online banks and online banking. While these terms seem alike, they are totally different.
Online banks basically refer to financial institutions that do business entirely online. They are just like a normal bank, but operations are entirely online.
Meanwhile, online banking refers to the act of doing banking online. In this day and age, thanks to digital advancements and the internet, online banking have become in. In fact, it has become a trend in the banking industry.
You see, whether you are a private individual, a business owner, a parent, or a student, whoever you are, managing finances nowadays have become so much easier, and one of the reasons why is online banking.
On one hand, today, most banks not just in the United States, but across the globe offer online banking wherein consumers can pay bills, transfer money to a friend or a family member, as well as access a record of their checking account transactions. All these and more consumers get to do right at the comforts of their homes, or wherever they are, and whenever they want to.
On the other hand, with online baking becoming a trend, and a lot of people have eventually embraced what online banking has to offer, online banks have also emerged. As the year goes by, the number of online banks in the U.S. per se has really grown.
Now, speaking of numbers, let’s get into some very interesting facts —
In the United States, the number of mobile banking users has reached more or less 57 million. This was stated in a report published by Statista in October 2019.
Meanwhile in another report, this time by the Pew Research Center, it says that 51 percent of American adults are actually into banking online.
Well, these numbers are not surprising at all given the fact that online banking has so much to offer –
Now, going back to online banks, there is some information that we’d like to share with you. Apart from the best reasons for using online banks, it is important too, first and foremost, know and understand what an online bank is all about.
In particular, we’ll share with you information about:
- What is an online bank?
- What is the difference between online banks and online banking?
- How do you open an account with an online bank?
- What are the best reasons for using online banks?
- Are online banks safe?
WHAT IS AN ONLINE BANK?
For most of us, February 22, 1999, was just an ordinary day. What we do know is that it was during that day that history unfolded in the banking industry. It was the day when the First Internet Bank of Indiana was formally launched. The event was held at the Museum of American Financial History in New York City.
As the name suggests, the First Internet Bank (as it’s now more popularly known) operates entirely online (which is what the whole idea of what an online bank is). So, if you are looking for a teller or a branch manager to talk about your money, you will just get disappointed.
Moving on, fast-forward to today, online banks, which basically offers online-only banking have grown big. The industry has exploded.
Today, more and more people are using online banks not just to save or park their money, but also to manage their finances, which is definitely a win for consumers.
Needless to say, most, if not all, online banks offer the same products and services that traditional banks offer. In fact, in some cases, even more.
WHAT IS THE DIFFERENCE BETWEEN ONLINE BANKS AND ONLINE BANKING?
As mentioned earlier, a lot of people confuse online banks in online banking. So, to clarify the confusion, here’s what makes the former different from the latter.
In this day and age, with the help of technology, and also to cope with the demands of consumers (needless to say to stay up-to-date), all banks and credit unions already offer online access, cash transfers, as well as bill payments, and many other services.
This is not surprising because people these days, people, particularly the young ones spend a lot of time online. In fact, in a 2018 research by Bank Administration Institute, a not-for-profit organization, it says that 51 percent of millennials would switch from one bank to another just to be able to get a better online banking experience.
With such demand, and also with the change of consumers’ attitude towards banking, banks need to find solutions to be able to retain their customers.
Thus, the country’s banks developed ways for their customers to be able to bank online. Basically, the birth of online banking.
As mentioned earlier, online banking refers to the act of managing your bank accounts with a computer or mobile device. Through online banking, consumers get to transfer funds, deposit checks, pay bills, and more.
Online banking offer features that are incredibly slick and convenient.
Meanwhile, online banks, as we have earlier discussed, refer to a financial institution that operates entirely online. Unlike traditional banks though, most online banks do not have a physical branch.
Online banks provide almost the same online banking experience with traditional banks with an online presence.
Again, to put it simply – online banks are a legit bank without a physical branch, and operates online only, while online banking means managing your bank account online.
Did you get it? Now, let’s proceed to another very important point that you need to know about online banks – the process of opening an account.
HOW DO YOU OPEN AN ACCOUNT WITH AN ONLINE BANK?
As discussed, online banks operate online only. So, how then do you open an account? Obviously, you do it online as well.
To help you with the process, here’s a step-by-step guide for opening an account with an online bank:
STEP 1: Proceed to the online bank’s website. Once you are on the site, look for a button or a tab or a link that refers to opening an account. Click that and you will be directed to the account-opening page.
STEP 2: Keep all necessary documents handy. Requirements for opening an account differs from one online bank to another. However, normally, online banks would ask for your Social Security number, a valid form of identification such as a U.S. driver’s license or other government-issued ID, proof that you’re a U.S. citizen or resident alien, as well as a U.S. address for a physical residence (not a P.O. box).
STEP 3: Create an application login. Depending on the bank, you would either be asked to create a username, or you just have to provide your email, and then create a password.
STEP 4: Choose the account type. Just like traditional banks, online banks also offer a variety of account types to choose from. Select based on your needs and preferences.
STEP 5: Fill out the online application. Just input whatever information is asked, and you’re done.
That’s basically it. To be honest, we find the process of opening an account in an online bank easier and more convenient as compared to a traditional bank. Needless to say, you can do it anytime – at your most convenient time.
If you are interested to know more about opening an online bank account, and its pros and cons, check below video by Frugal Chic Life:
WHAT ARE THE BEST REASONS FOR USING ONLINE BANKS?
Now, we’ve come to the real deal.
Here are some of the best reasons for using online banks:
1. Higher Interest Rates
Unlike traditional banks, online banks are known for paying higher annualized interest rates (APY) particularly on savings accounts, as well as certificates of deposits (CDs).
Perhaps you have already figured out the reason behind this. Yes, it’s because unlike traditional banks, online banks do not have to pay overhead costs that are usually associated with building as well as maintaining a physical branch.
If you are the kind of consumer who is looking for the highest interest rate available, well, online bank is definitely the way to go.
However, just do not be disappointed if you find that another online bank comes with a better rate than what you have. This is actually one of the reasons why a lot of people open and uses several online bank accounts. What they do is transfer money between accounts as the rates change.
To be fair, this strategy is quite rewarding, but of course, it needs work. You need to pay attention to transfer periods.
2. Less in Fees
Apart from high-interest rates, online banks are also known for charging less in fees. They were found to charge less for overdraft fees, as well as other bank fees and charges.
But apart from charging less, online banks are also known for free checking, which is our next point.
3. Free Checking
Probably, this is one of the best reasons for using online banks. Who doesn’t want free stuff, right? All the more if it has something to do with free checking.
In recent years, checking account fees have become a breaking point for consumers. Of course, as a consumer, you would always go for what is beneficial to you, right?
In a recent survey conducted by MoneyRates.com, it was found that checking accounts at online banks are more than twice as likely to be free of monthly maintenance fees as compared to traditional banks.
Surely, you will find some brick-and-mortar banks and credit unions offer free checking. However, most of them, if not all, are usually smaller institutions.
So, it is probably safe to say that it is hard to find this kind of deal with traditional banks. Although, there are traditional banks that may waive fees for as long as you have your paycheck deposited into your account or you keep a large account balance.
Now, with online banks though, usually, they do not have minimum opening deposits, as well as no minimum balance requirement.
In addition, consumers may also earn interest on cash in their checking account if they use an online bank. While the interest rate is not as high as the rate on an online savings account, it definitely is much higher than what you typically get in a traditional bank.
4. New Technology
The thing we like about online banks is that even though they have long produced innovative websites and applications, they do not stop there. In fact, they continue to innovate. They continue to find new ways to make online banking simpler, and more convenient to consumers.
One of the recent innovations of online banks is making depositing checks possible through your computer or through your smartphone. Very convenient, right?
The eCheck Deposit system from one of the popularly known online banks out there, for instance, allows consumers to take a photo or scan their checks with their mobile phones, and just like that, they can deposit it via the bank’s website or app. Immediately, the fund is deposited without the hassle of going to a physical branch, lining up, and so on.
What’s good about online banks is they allow their consumers to enjoy featured that they may not have access to. For example, online banks offer features like a free online bill or person-to-person payments, which sometimes are not available in traditional banks.
One more thing, with online banks, you may also enjoy a larger ATM network, which depends on where you are from. Thus, making it so easier to withdraw money anytime for free.
5. No Branch Visits
Obviously, as we kept saying early on, online banks are entirely online. No tellers. No branch managers. No physical branches (although there are some online banks that have very few branches, like one or two).
Having said that, getting into rather making transactions through online banks means saving a lot of time, gas, effort, and even money!
With online banks, you do everything online. No need to visit a branch to do all the financial stuff you need. If in case you need help, most online banks do have remote customer service, which is available through chat, email, or toll-free lines.
As competition rises among online banks, so does the availability as well as the quality of customer service that they provide.
Another thing, those who live in small communities will most likely appreciate the anonymity that comes with an online bank. With online banks, no one in the neighborhood will know about their financial transactions because they will not be seen carrying them out, which is really cool.
ARE ONLINE BANKS SAFE?
So, having shared with you some, if not the best reasons for using online banks, perhaps you are wondering about the safety and security of making these financial transactions online.
Are online banks safe? The answer would be YES.
As we have said, the number of online banks increases as years go by, which means, competition is getting high as well.
So, to ensure that people will patronize their bank, online banks look into finding and offering solutions to some of the things that consumers are most concerned about – one of them is safety.
Generally speaking, online banking is regarded as a safe way to make financial transactions. Of course, that is if you deal with a legitimate bank.
To ensure that you are choosing a legit online bank, make sure that it is affiliated with the Federal Deposit Insurance Corporation seal. The banks related to it are federally insured just like FDIC banks.
Meanwhile, with regards to credit union accounts, see to it that they are affiliated with the National Credit Union Administration.
But apart from these, there are also measure that you, as a user, can do to ensure the safety and security of your online bank account.
These measures include:
- Strengthening your password by using upper- and lower-case letters, symbols, and numbers in random combinations.
- Use biometrics, which allows you to confirm your identity using a unique physical trait, such as your voice, thumbprint (a popular method on mobile devices), or facial/retina scan, whenever possible.
- Be very wary when banking in public.
- Always keep an eye out for timely security alerts.
FINAL THOUGHTS ON BEST REASONS FOR USING ONLINE BANKS
Financial management is like a way of life. We do it regularly. Thus, it is not surprising that consumers, like us, try to find the best ways possible to make managing our finances, or dealing with our money easier.
On one hand, brick-and-mortar are proven and tested. Most of the banks we have now have been there for such a long time, and have already proven their credibility during the course of their service. Thanks to technology, and perhaps the increasing competition in the banking industry, banks innovate and cope with what their consumers need.
On the other hand, there are online banks. To be honest, they provide the kind of service that some of us find too good to be true, but they’re real! They exist. We would like to think that online banks are there to provide consumers options – better options, in fact.
Well, in a world where technology and the internet prevails, online banks are indeed very promising. Don’t you think?