Online-Only Banks: What to Look for

This is post #27 from the 30 Day Personal Finance Challenge: Boost Your Financial Health with a Daily Tip!

What is an internet-only bank? A bank which offers serves only online. An internet bank provides neither locations that you can visit nor face-to-face interactions with clerks. That’s why it’s so important to conduct a thorough research before opening an account.

You have to make sure that you TRUST this bank with your funds, and you can access them at any time.

Some banks really shine in a few areas, while others don’t even offer some basic features. Here is what you need to look for:

Accessibility

You should be able to move your money freely.

Access to a network of ATMs is important because it’s your primary means of accessing your funds. Make sure you ask for information on locations where free access is available.
Mobile banking allows you to complete your most common banking tasks wherever you are, right on your phone.
It’s easy to monitor your transactions and access your money.
Transparency – you should be in-the-know about everything related to your account. Your bank should not hide behind fine print, asterisks, or legal language. You should never be hit with surprise fees!
The initial minimum deposit should be low.

Fees

Your bank should never charge you excessive fees for using your own money. Make sure you ask for:

A complete written description of account fees including monthly service fees.
A description of ATM fees – you don’t want to pay more in fees than what you earn in interest.
Details for debit card fees if you plan to use your card to make purchases.
Details on ATM fees when traveling abroad.
Check what fee you are charged if you withdraw funds from your savings account more frequently than 5-6 times a month.
Requirements for minimum balance – banks commonly offer ATM or debit cards that you can use to easily access the funds in your account. However, many online banks require you to maintain a certain minimum balance in order to avoid fees and earn interest on your account. Ask what, if any conditions, apply.

Services & Support

You want a bank that makes it easy for you to stay on top of your finances. With just a few clicks, you should be able to check your balances, review your latest transactions and pay your bills. Here is what to look for:

Because you can’t visit a branch, customer service accessibility is key. Check what the contact options are: via phone (some banks are available 24/7 while others have extended customer service hours), via email or live chat.
The best online banks offer a variety of credit options: loans for mortgages, home equity, and cars as well as credit cards, including rewards cards and student credit cards
Number of linked accounts. Can you set up a network of accounts and zap money back and forth through your internet bank account?
Automatic savings plans. Can you put it on auto-pilot and let the money accumulate automatically?
An overdraft line of credit in case of financial emergency.
Free Person2Person Payments so you can pay friends and other individuals.
Online features, such as statements and budgeting tools, help you manage your finances and set saving goals.
Investment/Brokerage account.

Security

(Most) online banks are subject to the same federal regulations as brick-and-mortar banks. Use the same discretion when considering an online-only bank that you would for a neighborhood bank. Consider these factors:

Verify that your funds on deposit are insured to the maximum allowed by law. Look for FDIC (Federal Deposit Insurance Corporation) for the United States or the respective insurance for your country.
This insurance means you can recover your funds if the bank or credit union fails
Also, ask your bank how it secures private information as part of its online banking services.
Two-factor authentication indicates the bank utilizes enhanced security measures to verify you are the authorized user of the account. Examples of two-factor authentication include a passcode the bank sends to your phone after you enter your username and password and security questions you’re required to answer when you set up the account.
Check what kind of notifications can be set up to alert you when certain activities occur on your account, such as if your ID or password is changed, overdraft is reached, statement availability and payment due dates.

Interest rates

When a bank is going full online with its services, then the reduction in infrastructure and overhead cost leads to an increase in the interest rates on your savings account and also lower loan and mortgage rates.

Checking accounts should be free from monthly service fees and pay interest.
Savings accounts should also pay interest, be free from monthly service fees and have a low initial deposit requirement.

To sum it up,

Make sure you ask for:

A complete written description of account fees.
A description of ATM fees and information on locations where free access is available.
Details for debit card fees if you plan to use your card to make purchases.
Details on ATM fees when traveling abroad.
How to access online banking and what the fees are.
Details for how your funds on deposit are insured.
Information for contacting your financial institution if your ATM or debit card is stolen or if you suspect fraud with your account.
The phone number to call the bank for questions about your account and the hours that service is available.

Happy Banking!

Image: from Canva and here.