MANY OF OUR LISTENERS ARE CURIOUS ABOUT DIGITAL BANKING VERSUS TRADITIONAL BANKS. WHAT SHOULD THEY KNOW?
First, let’s talk about how we got here. Until the 1990s, banking had not changed much over the previous five decades. With the advent of the internet, banks began to offer services online. Eventually, some banks emerged without any physical presence, offering all of their services via the internet.
As the internet has become more and more pervasive in our lives, our banking options have expanded. It is now possible to set up a bank account from your couch. There are pros and cons that come along with these new banking options that I want to cover today.
WHAT ARE THE BENEFITS DIGITAL, OR ONLINE-ONLY, BANKS OFFER US?
The first among them is higher interest rates. The most generous among them can offer a full percentage point or two more than you’ll earn with a traditional bank. That said, this sometimes applies only to savings accounts, so will want to do your homework.
Additionally, digital banks often have fewer fees, such as those assessed for having a low balance, making direct deposits, or paying by check or debit card. They can do this because they do not have the overhead costs associated with physical locations.
On top of that, there are no geographic limitations when it comes to online banking. While we have seen consolidation in the banking industry in recent years, it is still the case that many banks are concentrated in certain regions. If you bank online there is no need to worry about having to switch banks if you move or hunt for a branch when you are traveling.
Finally, some online banks may offer additional rewards programs that you cannot find at traditional banks, including cash back earnings or bonuses for opening an account.
WHAT ABOUT THE DRAWBACKS TO ONLINE BANKING?
Absolutely. First, not all online banks guarantee your money like a traditional bank. When you walk into your local bank branch, you are likely to see the phrase “Member FDIC.” The Federal Deposit Insurance Corporation (FDIC) is a United States government corporation providing deposit insurance to depositors in U.S. commercial banks and savings institutions up to $250,000.
If you use a credit union, they are insured to the same amount by the National Credit Union Administration (NCUA). This is not always true for digital banks, so if you go this route, ensure they are part of the FDIC or the NCUA.
Also, keep in mind that digital banking will be more difficult if you often deal with paper money. If you have to make regular cash deposits, you are better off choosing a local bank. Traditional banks are also best if you have a business account.
Online banking also makes it more challenging if you need to cash checks. While you may be able to go to another bank or cash a check at a store, you are likely to face a fee. ATM fees can also be high, depending on the back. Lastly, there can be a longer period associated with transactions between accounts since transfers need to go through the clearinghouse.
HOW SECURE ARE ONLINE-ONLY BANKS?
The fact is there is always some degree of fraud risk when your personal information is online. This is true whether you are using a digital or traditional bank. Because of this, I have four tips for our listeners to keep in mind when banking online. First, never access your bank accounts through hyperlinks in e-mails, pop-up windows, search engines.
Second, always access your account by typing the web address in the address bar of the browser or by selecting the bookmark for the genuine website. Third, never leave your computer unattended while logged in to your accounts, and always makes sure log out at the end of your session.
Finally, be a stickler when it comes to your password: change it regularly – at least twice a year – and make sure the password you use for your banking is different than your other accounts like email or social media.
FINALLY, IS ONE BANKING OPTION BETTER THAN THE OTHER?
At the end of the day, it comes down to each individual’s needs. The more choices consumers have, the better! However, if you are considering banking with an online-only bank, you want to make sure they are FDIC insured, that they offer the types of accounts that you need, and understand the fees associated with ATM use. You also will want to know how you can reach a live customer service representative! After all of this, you can compare the interest rates available to you.
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