Even though Bank of America has rescinded its plans for a monthly $5 debit card use fee, the damage has largely been done — at least from the standpoint of the big banks. While Bank of America wasn’t the only bank to consider the move to increased debit card fees, it got the most publicity, and it started a huge campaign to encourage people to switch to smaller banks and credit unions.
One of the results of the interest in moving money to new banks has been an increased interest in online banking. Could an online bank be right for you? Many personal finance bloggers swear by online banks. I use one for my emergency fund, and I’m seriously considering making an online bank my primary financial institution. But before you make the change, it’s important to understand what you can expect from an online bank:
The Good: Benefits of Banking Online
Even though my primary checking isn’t through an online bank, I can manage my account online. I love it. It’s convenient, it’s easy to see what’s happening with my money, and I can take care of transfers quickly and easily. With online banks, there are also a number of perks that you can receive — that you won’t get with a more traditional brick and mortar bank:
- Better rewards: Many online banks offer better rewards. Indeed, many of them also provide access to rewards checking and rewards debit. These rewards are often just as generous as — or more generous than — what you find with major credit cards.
- Lower fees: A number of online banks offer free banking. With the big banks adding more and more fees, it can be tempting to go somewhere that won’t nickel and dime you for services that we have come to expect.
- Better interest rates: From better yields on savings products, to lower rates on loans, it is possible that you can get more for your money with an online bank.
Many online banks also make up for the scarcity of ATMs by refunding fees you incur, or directing you to ATMs in a specific network. Additionally, some online banks are allowing you to mail in deposits, or accepting check deposits remotely with the help of mobile phone apps. For many consumers the benefits to banking entirely online are huge.
Things to Consider Before Going Online with Your Banking
You should realize, though, that there are some drawbacks to saying goodbye to your brick and mortar bank. First of all, it can take time and effort to switch all of your banking operations to any new bank. You will need to move your money, as well as change all the information related to direct deposits and automatic debits. Plus, you may have to jump through some identity hoops, since you can’t just bring documentation down to the local bank.
Also, consider that some services can take time. If you deposit a lot of cash, or checks, then an online bank can be more of a hassle. You have to wait to mail your deposit, and cash can be tricky. Additionally, sometimes you have to wait longer for a debit card, or request one. This can make actually accessing your money difficult.
Finally, make sure you are working with a reputable online bank. There are some major players that you can trust, and even some smaller online banks that are legitimate. But you still have to be careful. Make sure the institution is FDIC insured, and that you are truly getting the best deal for you.
Miranda is freelance journalist. She specializes in topics related to money, especially personal finance, small business, and investing. You can read more of my writing at Planting Money Seeds.