Online-Only Banking: Ups & Downs
The digital world has transformed professional industries in unique ways that prior to internet access would have been impossible. Doctors can monitor patients remotely, lawyers can offer counsel online, software can complete your taxes for you, and even financial investments and advertisements can be made without any face-to-face contact. To some this would sound ludicrous and to others it sounds convenient, but one thing is for certain—the robo-advisor is another option that’s here to stay for investors.
Since the fledgling web evolution for the masses in the 1990s, traditional banks have been developing digitized ways to deliver services with the goal of reducing operating costs. Then came the advanced websites with more capabilities, like the ability for a loan application to be processed, and then arrived the internet-only banks. Surprisingly, the first fully virtual bank (FDIC insured) was the Atlanta-based Security First Network Bank founded in 1995. (It wasn’t profitable, but it proved it could be done.) In a way, the act of banking online has mirrored the shift in general society to card, website like PayPal, and mobile app payment capabilities. Yet, like how cash still exists and can be incredibly useful, brick-and-mortar branches still exist—there is still a corner in the world for them.
According to a 2015 report by the American Bankers Association, 32 percent of U.S. adults prefer to use Internet banking (on a computer) as their main method of account management. Mobile banking, via smartphone and table, continues to grow as 12 percent of adults prefer it as their main way of banking. 17 percent of bank consumers prefer to manage money by walking to a physical bank branch and talk with an actual person (not a robot over the phone or trying to figure out everything in the online portal).
Most regular people tend to use a mix of online and regular banks, as even community banks will have mobile site or app component. But, there’s also the option of online-only banks with no physical location which comes with its own benefits and detriments.
Convenience factor - Most of the time going to a physical bank location is unnecessary and mildly time-consuming. Online-only banks are incredibly convenient. It means you access all of your account information at any time without waiting on lines. Of course, most physical bank locations offer this online banking capability as well.
Enhanced offerings - If a bank doesn’t have to allocate substantial funding to physical branch buildings, an online-only model may have more resources to invest in a superior portal US and enhanced digital service offerings is only online than their UX and digital services may be superior to the hybrid models.
Winning Rates - That same reason of lacking overhead costs allows online-only banks to translate that into benefits like lower loan rates, no minimum deposits or balances, and high-yield checking accounts (to name a few). Be sure to read all the fine print and ask about common fees, penalties, and rates no matter what bank you’re considering so you can save the most and avoid unnecessary and annoying charges.
Go for the Green. This may be obvious, but online banking is good for the environment. It cuts down on paper, reduces gas emissions from not having to drive to a physical location, and eliminates the utility use associated with a physical branch.
Absent ATMs - Online banks don’t tend to have ATMS because they’re, well, all online. This isn’t an issue most of the time, but those few times you do need cash on hand you’ll have to pay those pesky transaction fees. If you are going to go with an online only bank, try to find one that reimburses for such costs.
Deposit limitation - Depending on your life situation you may need a physical bank location. Say you’re a barista who takes home tips every day. You could keep it in your sock drawer, but that’s probably not the best idea. Also, maybe your closest laundromat only takes quarters and you need to stock up on rolls of change. Having a physical branch for some of those mundane, but important tasks is sometimes necessary.
Face-to-face is finished - Sometimes you just really want someone to explain something to you directly without the space over the phone or web chat. So, it’s nice to have that option as a fallback. With online-only banks you don’t have that potential for when you really want or need it. Complex problems can sometimes need multiple minds on the issue. With an online bank that can be incredibly difficult…or even impossible given the situation. To counteract this as much as possible, choose an online bank with 24-hour customer service where you have the chance to speak with a real person (not a tele-robot).
Security flags - Just like the accounts in a traditional bank, online-only accounts are protected by the FDIC. Banks employ refined security and encryption software to protect personal information. But, banks like most things digital, aren’t immune to malware, hackers, phishing, and other security threats. To mitigate longstanding damages be sure to check any potential bank’s protections such as, what happens if your account gets hacked or there’s an unauthorized charged.
Account Balance - In today’s modern age of banking there’s a wealth of options to choose from if you’re establishing a new account or considering transferring funds. Don’t feel like you have to stick with one type of banking. Investigate your options for the best possible checking, savings, and credit accounts given your personal situation; consider elements like loans, mortgage, credit card debt, and account needs.
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities.
Edward C. Goldstein, CFP®, MBA, President
CERTIFIED FINANCIAL PLANNER ™ Practitioner
Financial Life Planning, LLC
10,000 Lincoln Dr. East, Suite 201
Marlton, NJ 08053