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SALT LAKE CITY — As society becomes more and more mobile and internet driven, traditional institutions are rapidly adapting to meet the demands. When it comes to banking, brick-and-mortar banks are competing with online-only banks for customers, and while each may have its perks, online banks are continuing to gain traction.
Pros of online banks
- Higher interest rates: One of the biggest draws for online banks, also called direct banks, is the high annual percentage yield (APY) they offer in comparison to brick-and-mortar banks. Online banks are able to provide higher APY rates because they save on overhead costs: They don't have physical locations, so they skip out on maintenance costs for branches across the country, meaning customers don't have to help pay to keep the branches running. For a checking account with a minimum of $2,000 directly deposited per month for 12 months, APY rates for Wells Fargo, Chase, U.S. Bank and Zion's Bank are less than .05 percent. However, with the same deposit numbers, online-only banks like Incredible Bank, Bank of Internet and Ally have APY rates ranging from .40 to .88 percent, according to data collected by mybanktracker.com. For a savings account with a minimum one-time deposit of $1,000, APY rates for Wells Fargo, Chase and U.S. Bank, again, are under .05 percent. FNBO Direct offers .85 percent APY for the same deposit amount, Ally offers .90 percent, and Bank of Internet offers .80 percent.
| Brick and mortar banks | Online-only banks | ||
|---|---|---|---|
| Zions Bank | .04% APY | Incredible Bank | .88% APY |
| Wells Fargo | .01% APY | Bank of Internet | .71% APY |
| US Bank | .01% APY | FNBO Direct | .65% APY |
| Chase | .01% APY | Ally | .40% APY |
| Source: My Bank Tracker | |||
In short, the difference between what an account makes on interest each month could be drastic: with a low APY, an account may only make a few dollars, but with a higher APY that same account can make hundreds.
- Reimburse ATM fees: Because there will never be a local branch customers can visit to take out money, many online banks opt for free use of any ATM or they reimburse of ATM fees. Ally Bank reimburses its customers for fees at any ATM nationwide and automatically tally the fees charged by other banks at the end of the monthly statement period, according to their website. Few brick-and-mortar banks offer this service: when an ATM for a bank or credit union isn't within reach, customers are usually out of luck and left footing the fee.
- APY transparency: Online banks have to be more transparent, or they won't draw a customer base. With online banks, APY information is readily available in just a few clicks, whereas APY rates for accounts with traditional banks are buried. Banks like Chase and Wells Fargo have their APY rates scattered in different locations across their sites, so without some digging they can be difficult to find. Ally, on the other hand, has charts and calculators for potential customers to estimate their APY rates.
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- Less paper: Because of the nature of online banking, customers get fewer paper statements and bills. This also goes for paperwork required to open accounts and credit lines — most of the work, if not all, is done online, so there's no waiting on paper documents to get mailed into a bank's headquarters for approval first.
Cons
- No cash deposits: There's no way to deposit cash, so all flow into the online bank accounts must come from direct deposit, transfers from other bank accounts that offer cash deposit options, wire transfers, or check deposits by taking a picture of the check. In other words, if you have a large amount of cash to deposit into an account, you may have to take a roundabout way to get it there.
- High minimums: Some online banks require a large balance before APY starts being tallied, and the more a person has in that account, the higher the APY will be. Be wary of APY rates and read the fine print, because they might be for a bracket you aren't interested in or capable of holding up. For instance, Ally Bank offers .70 percent APY for checking account balances equal or greater to $15,000 and .40 percent APY for balances less than $15,000. However, in sponsored ads for Ally Bank, it's not uncommon to see .70 percent rather than .40 percent.
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- No direct human interaction: Credit unions and local branches allow customers to go to a place to go if they want to talk to someone face to face about their account, credit and loan options, or changing a name or person on the account. In many cases, customers will sit down with tellers to discuss loan or credit options, and the teller will add notes to applications to supplement the required information, which may give applicants a better chance at getting the credit line. With online banks, that interaction is nonexistent and customers never meet the person on the other line helping them sort out their accounts. However, this might not necessarily be a con for every customer. Some prefer minimal face-to-face interaction because it might take too long or they rarely go to a physical branch. Most online banks offer 24/7 phone or chat customer service, so customers still have someone to talk to when they need.
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