8 Things to Consider Before Switching to an Online-Only Bank


The rise of online-only banking has been meteoric over the past several years. These virtual financial institutions offer tantalizing customer-focused products, as well as the latest technology to make online-only banking a breeze. Are you considering making the switch to online-only? Before you dive in, make sure you're considering the following things about this increasingly popular way to manage your money. (See also: 5 Best Online Savings Accounts)

1. How important is in-person service to you?

Some people just cannot, and will not, take human contact out of the equation. It's not a case of technofear, but the comfort of knowing that if anything does go wrong, or you need help, you can drive to a physical location and sit down with a bank representative.

Talking over the phone (which can lead to frustration over endless phone menus and outsourced help) has given many people heartburn over making a call. And live chat can be even worse. What's more, if the bank website goes down, the app fails, or you don't have internet access, you can feel helpless without a direct way to access your money.

So, before making the switch to online-only bank, ask yourself: Am I going to need in-person help in the future? If the answer is yes, online-only banking may not be for you. (See also: 7 Ways to Pick the Bank That's Right for You)

2. Does the bank have an established record of good service?

This is your money. Are you ready to entrust it to a new online-only bank with a lot of slick graphics, ad campaigns, and amazing promises, but no proven track record of success? With new online-only banks popping up every day, you need to do your research.

It's on you to do the homework and get good feedback before turning all your money over to a new online-only bank. And remember, even banks with a long history of business can have their troubles, so check into names you know well. What's in the news? It never hurts to triple-check.

3. Is the online-only bank FDIC insured?

The Federal Deposit Insurance Corporation was created in 1933 to promote public confidence and stability in America's banking system. Of course, a lot has changed since then, but the FDIC insurance seal is still a vital part of your safety and security.

Should anything happen to the bank (remember 2008?) your money is protected, usually up to the amount of $250,000; any more than that and you'd have to purchase additional insurance. However, most of us fall into that $250,000 category. If the online-only bank you're considering does not carry FDIC insurance, you should probably look elsewhere. To check, enter the name of the bank on the FDIC's website and you'll get your answer instantly.

4. How easy is it to put money in and get money out?

The last few years have seen some great features and benefits in both the traditional banking industry and their online-only competitors. For example, most banks now offer some kind of mobile check deposit using your smartphone or computer. In the case of online-only banks, this will be the primary way you get money into your online-only account after the usual direct deposits and electronic fund transfers.

There are also payment apps like PayPal, Venmo, Google Wallet, and Cash App. How well does your online-only bank integrate these systems? And many of these online-only banks have deposit limits. If you anticipate wanting to put more than, say, $30,000 a month into your account, this may not be for you.

Then, there's getting money out. Even in this increasingly cashless society, we still need physical money now and then. When that situation arises, how easy is it to get money from an ATM? Is the online-only bank even part of an ATM network? What about getting foreign exchange currency? If you need quick and easy access to cash, make sure your online-only bank can handle the request.

5. Are you comfortable with a limited selection of services?

Online-only banks have less options than their traditional brick-and-mortar counterparts. While both usually offer checking and savings accounts, credit cards, and cash back rewards, the online-only bank you choose may not provide home equity loans, auto loans, and other services you have come to expect from a bank. There are, of course, always other options for those kinds of services, but if you like to keep all of your financial accounts in one place, an online bank may not be what you need.

6. Are the interest rates competitive?

Luckily, most online banks nail this one. Unless you try really hard, you won't find an online bank that has rates lower than a traditional bank. The reason is simple — their overhead is lower. They don't have physical locations to maintain, which includes costs for everything from heating and lighting to security and maintenance.

With significantly lower operating costs, online banks can tempt you away from regular banks with excellent interest rates on a variety of products. For example, right now it's relatively easy to find an online high-yield savings account with an interest rate of over 1.5 percent; that's 15 times higher than the 0.08 percent national average. (See also: Interest Rates Are Rising: Here's Where to Keep Your Cash)

7. What about banking fees and minimum deposits?

As mentioned above, the low overhead costs of online banks mean that they can reduce fees and increase interest rates on checking and savings accounts. But there are other fees to consider.

If the bank isn't part of an ATM network, you'll be paying higher fees to take out your cash. And while some online banks start with a minimum deposit of just $1, others can ask for thousands of dollars to take advantage of the advertised rates. Like anything else, shop around and find the best option for your situation. If you rarely use an ATM, and use a cash-back service at the grocery store, you may be better off paying higher ATM fees to get higher interest on your savings. (See also: Are You Paying These 6 Unfair Banking Fees?)

8. Read the fine print carefully

The financial industry loves fine print, and online banks are no exception. Before you sign your name on the dotted line, go over everything with someone who knows the system well. There may be outrageous fees hidden in the fine print, or you might find that your information may be sold to advertisers and other agencies. This is not just your money, but your Social Security number and your personal information. Be sure you trust the institution 100 percent before you hand over your money and your personal information.

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Guest's picture

I would keep a local bank account thats free on top of having the high interest online account. This gives you the option to automatically route funds from your online account and pick it up locally if its going to be more than the ATM daily max.

Guest's picture

I avoid ever using an ATM card with my savings account. I don't want to pay the fees and the bank won't refund the fees. For me, all of the movement of cash is done by transfers to/from my local checking account.

Additionally, make sure that the online savings account isn't just offering a "teaser" interest rate for the first 3 or 6 months. I've seen quite a few try this tactic in the past.

Guest's picture

The issue of beneficiaries haven't been discussed too much on internet articles about online banks, but this was actually a big reason why I left ING Direct and went to Ally bank. Last year, I had money in ING Direct and was looking to update my beneficiaries. To my surprise, there actually was no way to put beneficiaries on ING accounts. I know there's probably a way to pass the money on down to whoever you want through all the estate/death planning, but beneficiaries are the simplest way to designate, and it's a pretty powerful estate transfer method.

Anyway, just thought this might be something that someone might want to consider as well.

Guest's picture

I would say the best bet is to open an account with a credit union, and some credit unions will allow you to open an account online. Regardless, you can do all your banking through direct deposit, online bill, ATM deposits/withdrawls, and all of it can be done fee free quite conveniently. Not to mention that their savings rates are typically better than a bank...I would say 99% of the time!

Guest's picture

Before opening the online account we always need to check all the terms and conditions.
Recheck your accounts after online transactions. Do not access your online bank account on untrusted computer if accessed then immediately change transaction password.

Guest's picture

You should look at several options before you determine which bank is the right one for you. If you travel a lot with your job, or just for fun, you may be better off going with a bigger banks that is located all over the United States. This can save you money in ATM fees. If you do not plan on traveling much you may find the products and customer service at a smaller bank a better fit. If you qualify for a credit union, you should take advantage of it. Credit unions offer higher interest rates on savings accounts and lower interest rates on loans. Generally the fees are much lower at credit unions as well.

Guest's picture

To me the thing that matters most is the customer service. I really don't want to open an account with a bank that pays me the best interest rate but makes me regret my decision, of opening an account with it, by harassing its customers for petty things.

Guest's picture

You can look online at the minimum balance requirements and fee schedules for the different accounts offered through several banks. You need to determine if you can afford a minimum balance requirement and decide how much that is. There are several advantages for being able to maintain a higher minimum balance, you may be able to avoid monthly banking fees, earn higher interest rates and avoid fees for money orders and travelers’ checks. However, if you choose an amount that is too high, you will be charged fees for being under the limit.

Guest's picture

The advantage of online banking is higher interest rates. You still need to have a local bank linked to your account to access funds and in some cases deposit checks. Most online banks allow electronic check deposits by scanning the check, but I found out that they have limits to the dollar amount. Ally is pretty reasonable allowing up to $10K. Capital One 360 (ING) on the other hand only allows $3000. I can understand increasing the check holding period, etc., but to have a policy that limits a check amount is ridiculous and is another reason that online banks are NOT full service.