Bank Online or the Old-Fashioned Way? Here's How to Choose
by May 6th 2013 5:00AM
By MEGAN DURISIN
It's news we've heard before - online banking is the way of the future.They seem to have it all: relatively high interest rates, stellar customer service, low fees, and the added bonus of 24/7 access to your finances with the click of a button.
Still, online banking isn't for everyone, and the line between the two is becoming blurred as more banks ramp up their web presence to compete.
To help you decide, we tapped Richard Barrington, a senior financial analyst at MoneyRates.com, to break down the pros and cons of keeping your cash in a traditional versus online bank.
Security: This is one issue that scares many people away from taking their banking online, but Barrington said it shouldn't. Even traditional banks have all your financial information stored in a big data center that could be vulnerable to hackers. "Data theft is a very real risk these days, but, unfortunately, as a consumer, it doesn't come down to whether you choose to bank online," he said.
If you choose an online bank backed by the FDIC, you'll be covered for losses up to $250,000 just like any other bank customer (use the FDIC's Bank Find tool to be sure). And, of course, remember to avoid doing any online banking on a public or shared WiFi connection, since that's when your information can be most easily intercepted.
Fees: Online banks are friendlier to smaller depositors because they typically require lower monthly balances. Barrington said traditional banks require an average of about $4,700 to be kept in your savings account without charging you a nominal monthly maintenance fee. For online banks, that number is much lower at $350. In addition, online banks are about twice as likely to offer free checking, he said.
"I think (online banking) is a really good option for younger customers - the fees as a whole are lower, the balance requirements are also lower, and young people as a rule are more comfortable with technology," Barrington said.
ATMs: Banking is all about getting cash when you need it, and Barrington said people should look at the locations of a bank's ATMs before they open an account. "You want to make sure you choose a bank where the geographic footprint of their ATM network is similar to your regular movements," Barrington said.
Traditional banks, like Chase and Bank of America, have ATMs all over in many major cities. Online banks, like Simple, often have agreements with ATM networks like Allpoint for surcharge-free withdrawals. And most others offer to reimburse customers up to a certain sum for using out-of-network ATMs.
Deposits: Web-based banks offer a few different options to deposit physical checks. You can always mail them in, but most online banks also offer "eDeposits" in which you can take a picture of the front and back of each check and upload it to your account for deposit. A lot of people still would rather deposit a check with a teller than a text message, but the option's out there. "People are for the most part checking their balances online, getting information online, but when it comes to depositing a check, they'd much rather hand it to a teller," Barrington said.
Interest rates: Online banks typically have better interest rates than traditional banks because they don't need to take any funds to operate brick-and-mortar buildings. In a recent MoneyRates.com study, online banks were found to have about six times higher interest rates than the nationwide average. Some of the best were found at Ally Bank, American Express Bank and Sallie Mae Bank.
Customer service: If you like to deal with the people managing your money via email or over the phone, go digital. If you'd rather have someone to talk things through with face-to-face, stick with a regular bank. Nearly all banks also have call centers and online message centers as well. Online banks are rarely, if ever, "closed." But if you'd rather use a traditional bank to complete your transactions or get questions answered in person, you'll need to visit your bank during normal business hours and make sure it's not a bank holiday.
Personal preference: Having a personal relationship with a banker can be a big benefit for people, especially those who like getting new products or services pitched to them or getting in-person financial advice. But keep in mind that banks have been closing physical branches left and right to cut costs, even installing ATMs that allow tellers to answer questions via web cam. "As time goes on, the comfort level will grow more and more," Barrington said. "If the technology can prove itself, people will use the technology."
The bottom line: If you're comfortable with technology and don't feel like you need face time with the people handling your cash, keeping your savings in an online bank is a great option. You'll see your money grow faster than with a big bank, and you'll pay less in fees. As far as checking accounts go, online and traditional banks are pretty much neck in neck.
"I think the common denominator is that online banking is cheaper for banks to provide because they're not supporting a physical branch and people to staff that branch," Barrington said. "Even banks that offer both are likely to offer you higher rates and lower fees if choose online options."