Banking goes virtual.
These days, most everyone participates in some form of online banking—such as double-checking account balances or paying bills online—but that doesn’t necessarily mean they’re using an online bank. Most banks today offer some form of online access; however, a unique form of online bank is cropping up all over cyberspace and what these banks lack in bricks and mortar, they make up for in benefit and savings.
What is an Online Bank?
An online bank is a real bank even though you may never visit it in person. These banks forego the traditional brick-and-mortar establishments and instead operate exclusively online. Because these banks have eliminated the overhead and expenses associated with multiple buildings, they can pass on significant savings and benefits to their customers.
Benefits of Using an Online Bank
Online banks may not be right for everyone, but the do offer several benefits:
- Higher interest rates: By keeping overhead and expenses low, online banks are able to offer customers higher interest rates.
- No fees: Most online bank accounts are free to set up.
- No minimums: While traditional banks often require you to maintain a minimum balance, most online banks do not follow this rule.
- Easy transfers: Online banks typically link to your checking account, making it easy to transfer money into savings and forget about it.
- Out of sight, out of mind: When you save money in an online bank, you’re less likely to dip into that savings.
- Incentives and sales: Online banks offer many incentives and sales, such as increased interest rates for a certain period of time.
What to Look for in an Online Bank
Choosing an online bank can be daunting—you can’t visit and get a feel for the place and the people, so it’s important to evaluate whether the bank meets some standard criteria. A few things to examine:
- Years in operation: There are many sound financial institutions online. Unfortunately, there are also plenty of sketchy online banks that offer unbelievably high interest rates that are unsustainable. You know how that story goes—if it sounds too good to be true, it probably is. To avoid this pitfall, look for a bank that has been in operation for a while and has established a solid long-term track record.
- Interest rates: Look for an online bank with a competitive interest rate. Because these banks have eliminated their overhead, they should pass the savings on to their customers. Before you move your money, you should be certain that you’re gaining enough in terms of a higher interest rate to make the move worth your while.
- Financial soundness: Bankrate.com is an excellent resource for determining the health of a bank. Look for a bank with a 5-star rating—meaning they have enough in capital reserves to pay interest and to allow you to withdraw your money.
- Easy access: Look for a bank that allows you to withdraw your money easily and effortlessly. The electronic process should take a maximum of 1-2 days.