Why You Should Move Your Savings to an Online Bank
The Internet bestowed many gifts upon humanity: instant communication, the ability to stay in touch with friends and family, access to details when news breaks, cat videos. But one of the best gifts in recent years has been the online-only bank.
Online-only banks offer higher interest rates on savings accounts and way to escape the harsh fees from monster banks and even credit unions. And no, simply logging into a bank's online portal (for example, Chase.com) doesn't make that an online-only bank.
Credit unions are often cited as an option to flee the clutches of banks such as Bank of America, Citibank, Chase and Wells Fargo. Unfortunately, credit unions often still charge steep overdraft fees.
This isn't to say credit unions aren't a great alternative to banks. They often have lower interest rates on loans, more transparent banking products and substantially less fine print. However, neither credit unions nor banks provide the same advantages a consumer can find banking with an online-only bank.
What Your Loyalty Pays For
Banks don't reward loyalty; despite all the money they spend on marketing to tell you otherwise. In fact, they tend to penalize loyalty.
Banks have two teams working with customers: one called retention (working with existing customers) and the other is known as acquisition (luring new customers in).
The customers being wooed get the great deals, including bonuses for opening a bank account, or 30,000 miles to sign up for a credit card if you spend $1,500 in three months.
Unfortunately, the money being used to seduce those potential customers needs to come from somewhere. That somewhere looks a lot like existing customers. Overdraft fees, maintenance fees, hiked up interest rates on credit cards and 0.01 percent interest rates on savings accounts all quickly pad a bank's bottom line.
Advantages of Cutting Ties With Your Brick-and-Mortar Bank
Online-only banks such as Ally, Bank of Internet USA, Charles Schwab, Capital One 360, Simple and others are giving traditional banks a reason to start slashing their inflated fees.
While each online bank checking account is different, most of them offer the following perks:
-- No ATM fees -- which could save you $4.35 per transaction
-- Low or no overdraft fees
-- No or low non-sufficient fund fees
-- No monthly maintenance fees
-- Deposit checks via phone
-- Higher interest rates on savings accounts
Online banks are also FDIC insured just like a brick-and-mortar bank and offer the same level of protection.
Why Online Banks Can Afford to Wave All Those Fees
Brick-and-mortar bank branches cost money -- a lot of money. Online banks can save all the costs associated with running a physical location and use the savings to provide better value to their customers in the form of lower, or no, overdraft fees, higher interest rates on savings accounts and no ATM fees.
When You Need a Local Branch
Need a cashier's check? You may need more lead-time than if you go into a local bank branch. People who deal mostly in cash or don't own a smartphone or scanner would also have trouble using an online checking account.
Checks can easily be deposited via smartphone apps or a scanner if need be. But cash is often cumbersome to deposit into an online bank account. However, this may soon change. Capital One recently announced that by year's end, all Capital One ATMs that accept deposits will allow Capital One 360 customers to deposit cash into their online accounts. Customers will also be given same-day access to their cash deposits.
Stop Giving Banks Free Loans
Some people like walking into a bank, speaking with a teller and having the ability to easily deposit cash. While you may never leave your bank entirely, you should consider moving your savings, rainy day fund or emergency fund to an online bank.
Most brick-and-mortar banks offer horrifically low interest rates, typically around 0.01 percent. Credit unions are often a little better, but still lower than the 0.95 percent offered by some online banks such as GE Capial Bank and Synchrony Bank.
To put it in perspective, $10,000 in a savings account at 0.01 percent interest will earn a whopping $1 after a year. However, $10,000 at 0.95 percent will yield $95 in interest. That's $94 extra dollars for just moving money into another account. Seems worth the effort.
Take the Time to Make the Switch
People need to stand up against banks charging horribly inflated fees and underpaying for loyalty. The best way to send this message is to take action and switch from a traditional to online bank. Or at the very least, move a savings account to earn more than 0.01 percent. Customers deserve more than a single dollar on $10,000.
Erin Lowry writes about personal finance and manages social media for MagnifyMoney.com, a site dedicated to helping consumers save money by finding simple, transparent financial products. She is also the founder of the personal finance blog Broke Millennial.
