Pros And Cons Of Online Banks
When markets become volatile, people tend to look for safer places to store their money. Naturally, some have opted for high-yield savings accounts that are often offered by online banks.
Online banks can offer higher returns to savers along with lower fees compared to traditional banks. This combination can help you grow your money faster, while retaining more interest than you earn.
But online banking is not the right option for everyone. If you are looking for a place to store your savings, take a look at the pros and cons of choosing an online bank over a traditional bank.
Benefits of online banking
High Yield Interest Rates
The main benefit of using an online bank is usually the interest rate. Interest rates on your savings accounts are almost always higher because your overhead costs are lower.
There are no branches to maintain, cashiers to pay, branch managers, or cleaning staff. Without these additional expenses, banks can pass the savings on to customers in the form of higher interest rates.
When comparing APYs to high-yield savings accounts, make sure they are ranked based on account balance. Some online banks require you to keep a certain amount in your high yield savings account before higher rates appear.
In addition to the higher fees, online banks also generate another benefit in the form of lower fees. Compared to a traditional savings account, which may have a monthly maintenance fee of $ 5 or $ 10, online banks may not charge monthly fees. No minimum balance requirements and low minimum deposits to open an account add to your appeal.
Although you may not pay any monthly fees, be aware of other fees that online banks may charge. For example, the bank may charge a fee for excessive savings withdrawals or wire transfers.
Superior online website interface
Online banks often have very sophisticated websites with many features and a very fast response time. They also have mobile apps that offer convenient and simplified account management on the go.
Many traditional banks offering online capabilities tend to do so in the background, although some big-name banks are revamping their online and mobile banking systems to keep up with online competitors.
Opening an account is quick and easy
Being completely online, everything you need to do can be done online at any time. If you want to open a new CD on Sunday night, you can. You don't have to wait for a branch to open, you don't have to drive to the branch, wait in line and fill out paperwork, or meet with a banker. You can carry out your banking transactions on your own terms.
Disadvantages of online banking
Sites may stop working
While rare, it is not uncommon for online banking sites to go down. When this happens, you may temporarily lose online or mobile access to your money. This could force you to use the phone or, worse, not be able to make an important transaction.
You cannot go to a branch
It's comforting to be able to go somewhere and talk face-to-face with someone. With online banking, the aspect of the banking relationship, which is most critical when it comes to loans, is gone. Some online banks offer loan services such as mortgages and auto promissory notes, but you may be more comfortable opting for conventional banks for these types of services.
Potentially high ATM charges
While some online banks have an extensive network of toll-free ATMs, not all do. If you can't use one of your online bank's ATMs, you may need to use one from another bank. This can result in a foreign ATM surcharge, and your online bank may also charge you a fee for using another bank's machine. This can make obtaining cash or checking the balance more expensive than necessary.
If you choose an online bank for checking or savings, look for one that offers monthly ATM fee refunds abroad.
Playing the waiting game
Since online banks do not have branches, your options for making deposits or withdrawals may be limited to ACH transfers, direct deposit, wire transfer, or mobile check deposit.
While you have several ways to add money to your online checking or savings account, or transfer it to another account, these transactions take time to complete and clear once they arrive in your account. This can be inconvenient when time is of the essence.
In general, the benefits of high-yield savings accounts at online banks tend to outweigh the disadvantages. While they may not be ideal for your day-to-day transactions, they are a great place to save some money for a rainy day or keep your emergency fund and earn above-average interest rates.
We hope you enjoy watching this video about online banks vs traditional banks
Source: Wealth Up
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