Online-only banks typically offer better returns on savings accounts when compared to traditional banks.
In recent years, there have been more and more online-only banks. This is partly because some of these banks offer high-yield savings accounts to their customers.
Saver returns with online banks may be higher, and the fees they charge may be lower, compared to those at traditional banks with brick-and-mortar locations. This combination has the potential to help you grow your money more quickly while allowing you to keep more of the interest that you earn.
On the other hand, not everyone will benefit from using an online bank. If you are looking for a place to save your funds, you should weigh the benefits and drawbacks of using an online bank rather than a conventional bank with physical locations before making your decision.
The Advantages of Using Online Banks
Interest rates with a high yield
The interest rate offered by an online-only bank is typically the primary advantage of using such a bank. Due to the fact that they have lower administrative costs, the interest rates that they provide on their savings accounts are nearly always greater.
There are no physical locations that need to be maintained, no teller positions that need to be filled, and no branch managers nor janitorial employees are required. If banks did not have to pay for those additional expenses, they would be able to give the savings they made to their clients in the form of higher interest rates.
Check to see if the annual percentage yields (APYs) of high-yield savings accounts are tiered based on the account balance before you compare them. Some online banks require you to maintain a particular balance in your account before greater interest rates are applied to your high-yield savings account.
The lower fees that are associated with using an online bank are another advantage offered by these institutions, in addition to the higher interest rates. When compared to a conventional savings account, which may charge a monthly maintenance cost of between $5 and $10, online banks may not charge any monthly fee at all for savings accounts.
Their appeal is increased by the fact that they don't need you to have a minimum balance and that all you need to open an account is a small amount of money.
Be on the alert for additional fees that some online banks may demand, even if you don't have to pay a monthly fee. For instance, the bank might charge a fee for making an excessive withdrawal from a savings account or for making wire transfers.
Excellent user interface for an internet website.
The websites of online banks are often quite advanced, packed with a wide variety of services, and characterized by a very rapid response time. In addition to this, they come with mobile apps that make managing your account while you're on the move easy and straightforward.
Many traditional banks that also have an online presence do so as an afterthought most of the time. On the other hand, some of the more well-known banks are revamping their online and mobile banking systems in order to keep up with their rivals in the digital banking space.
The creation of a new account is a simple and speedy process.
Due to the fact that everything is done via the internet, you may do any task that has to be done at any time. On a Sunday night, you are free to play a brand-new CD if you feel like it.
You do not need to wait for a branch to open, drive to the branch, stand in line, fill out paperwork, or meet with a banker. Additionally, you do not need to wait for a banker to meet with you. You are free to choose how you want to conduct your financial transactions.
The Downsides of Using Online Banks
The availability of websites is not guaranteed.
Even if it happens infrequently, it is not unheard of for the websites of online banks to experience technical difficulties. If something like this happens to you, you might not be able to access your money through your mobile device or online for a while. This could mean that you have to use the phone, or even worse, that you can't finish an important transaction.
You are unable to visit a branch location.
There is something really reassuring about being able to physically go somewhere and communicate with another person. The relationship-building component of banking, which is particularly important when negotiating terms of loans, is rendered obsolete by the rise of online banking.
Although there are some online banks that provide loan services such as mortgages and auto loans, you may find it more convenient to continue with traditional banks that have physical locations for these types of services.
The possibility of high ATM fees
Some online financial institutions do offer broad fee-free ATM networks, but this is not the case for all of them. If you are unable to use an ATM that is owned by your online bank, you may be required to use an ATM that is operated by another bank.
This may result in a foreign ATM surcharge, and your online bank may additionally assess a fee for making use of a machine belonging to another financial institution. It is possible that, as a result, getting cash or checking your balance will cost you more money than it should.
If you decide to use an online bank for your checking or savings account, seek out one that will reimburse your fees for using ATMs in other countries on a regular basis.
Options for Making Deposits and Withdrawals Are Restricted
Your choices for making deposits or withdrawals may be restricted to ACH transfers, direct deposits, wire transfers, or mobile check deposits due to the fact that online-only banks do not have physical branch locations. It is not possible to make a direct cash deposit or withdrawal at this time.
The advantages of high-yield savings accounts offered by online banks typically have a tendency to exceed the disadvantages of having such an account. Even while they might not be the best option for handling your day-to-day business operations, high-yield savings accounts are excellent options for putting money aside for a "rainy day" or for holding your emergency fund, as they offer above-average interest rates.