Historically, financial institutions aren’t known as early adopters of new technologies. Things are changing today, however, thanks in no small part to the rise of fintech startups known as neobanks or challenger banks. They’re claiming their slice of the financial services pie by offering innovative banking services that are convenient and affordable.
This has urged traditional banks to catch up and start providing a better service that can be accessed over the internet. Some feature additional tools to help you manage your money, while others offer a more lucrative place to grow your savings. The best bank for your buck depends on your financial needs and goals.
That said, it pays to know what to look out for. Consider these six things when choosing an online bank.
Going digital doesn’t have to mean giving up cash. Most online banks are connected to a network of ATMs, but not all of them are free.
Be sure to look into the availability of the bank’s ATMs in your area and check whether they offer transactions on machines from other banks – that’s where you can expect the highest fees. Granted, this isn’t always important. If you simply want a solid online savings account, then ATM access won’t be a major concern.
On that note, one of the greatest benefits of dealing with an online bank is being able to earn a higher yield on cash savings. You can expect an APY (annual percentage yield) of 1.8% or more from the average savings account.
Keep in mind that you’ll typically have to forgo certain options, such as a debit card, to use one of the higher-earning accounts. There are also certain rules and requirements to be eligible for the best rate, such as a minimum/ongoing deposit or balance to be maintained.
The best online banks offer around-the-clock customer support, even on weekends. Moreover, they should be human representatives who know what’s going on. Robots aren’t advanced enough to be a reliable service just yet.
The mere presence of a 24/7 customer service line isn’t sufficient, though. Take a moment to trawl around the bank’s social media and business listing pages to check out their track record and see what other people have to say. Calling them or sending an email and asking some questions can give you a better idea of how they respond to requests.
The Federal Deposit Insurance Corporation (FDIC) protects customer assets in the event that a bank fails. This includes up to $250,000 per depositor for checking, savings, money market and certificate of deposit accounts.
Credit unions and the like are usually protected by the National Credit Union Administration (NCUA), which serves the same purpose. Both organizations ensure that you won’t lose your money if things go south. Look for the relevant certification on the bank’s website and verify that the bank is genuinely insured before opening an account.
Another major benefit of online banks is that they offer a range of useful tools and features for gaining control of your finances. The most important is being able to access your accounts with a mobile app, which is far more convenient than having to load up a web browser before logging into one page and navigating countless more just to check your balance.
There are several apps that can be connected to your online bank account to achieve a variety of tasks, from staying clear of overdraft fees to tracking your spending and much more. Here are some of them:
- Chime is a mobile banking app with unique features such as rounding up your purchases before depositing leftover change into a savings account, as well as automatic deposits based on when your paycheck arrives.
- Dave pays an advance to fill the gap whenever you risk overdrawing your account.
- Acorns allows you to invest your spare change into a low-cost index fund to grow your savings faster with minimal fees.
- Digit analyzes your spending patterns with complex algorithms to determine the ideal amount of money you should save and automatically makes the appropriate transfer.
If you fancy the idea of using some of these apps, be sure to consider whether your online bank is supported, so that you can link up the two accounts.
Your run-of-the-mill customer support service is helpful in most situations, but if you’re making a significant investment that requires careful consideration, good advice is necessary.
Some online banks have robo-advisors for this purpose, which utilize AI technology to help you build a balanced portfolio. Whether you want to create a reliable retirement fund or simply get better returns on short-term savings, having solid investment assistance is key.
Some other important factors to consider include strong security, ease-of-use, and a high BauerFinancial rating. If your online bank gets all of these right, you probably have a winner.