Are saving your money in a regular savings account? Do you have your emergency fund saved in a safe, accessible place? Well, most people would answer that they keep their checking, savings, and emergency fund money in their regular bank. The only problem with this scenario is that banks in the traditional sense have high costs that are passed on to you, the customer. Never fear there is a safe and reliable option to regular banks, and that is true on-line banks that do not have any a physical presence.
Yes, credit unions are an alternative to large and smaller banks which are technically for profit where as a credit union operates as a non-profit with any such profits being passed along to it members or customers. As a general rule, credit unions have lower fees, charge lower interest rates on loans, and pay higher interest rates on savings deposited in their institution. But credit unions still have overhead an on-line bank does and has lower fees than a bank but they for the most past still do not compete with on-line banks.
Now to just clarify something that some of you may be thinking. If you log into your on-line account at say Bank of America that is not the type of on-line banking, I am referring to here. There are many on-line banks that have a presence only on the Internet. Some that come to mind are Capital One 360 which I had used for years going back to before they bought out ING Orange. In this case as well as other on-line banks, they do not have an actual brick and mortar building in which customers can go. By not having a brick and mortatr building, this is cost savings number one for the on-line bank. Now many people fear that because they cannot go to the bank their services may be reduced, and that is not the case in most instances. And just as a regular bank your deposits are insured by the FDIC.
A second reason banks and some credit unions, to a degree have higher fees than on-line banks, is they are fighting for customers in the first place in order to gain market share. In order to get more customers, banks, run specials where they may offer a higher interest rate for a specified period of time or provide a credit card with a bonus of some sort after they spend a certain amount of money. These incentives do come at a cost, and that cost is passed along to the existing customers in the form of higher fees, higher interest rates on loans, and lower interest rates paid on deposits. With banks, it all boils down to what makes the bottom line look the best it can for the bank’s owners or shareholders.
While on-line banks are not for everyone, they do offer some very enticing features. Most on-line banks offer ATM uses with no fees which can save you upwards of $4 a transaction, lower or in many instances no overdraft fees, no charges for low balances on accounts, no monthly maintenance fees, higher interest rates on deposits, and with smartphone apps you can even deposit checks from your phone. I cannot speak for all on-line banks but as I have used Capital One 360 for over a decade, I have never had to pay any fees of any sort. And recently I started to use their mobile app for the iPhone to deposit checks. It is real easy to use, and the hold is only two business days on checks deposited in that manner. And for those who like to use bill pay that is also a free feature at most on-line banks as well. Are you a check writer? Capital One 360 has a solution for that as well as for a small fee you can order actual checks that you can use in any manner you need. Here is where Capital One 360 will separate itself from other on-line banks, over the next year 360 account holders will be able to make cash deposits at Capital One ATM’s and they will have same day access to the cash they deposit.
While it is true that many on-line banks do lack the local conveniences of a local bank or credit union, you may not leave them altogether. But consider at least moving your savings and emergency funds to an on-line counterpart if for nothing else the higher interest you will earn on your money. With interest rates being at historic lows and some as low as 0.01% there, really is no reason to leave your money in such a situation. Consider you have $10,000 in your savings account earning 0.01% or a dollar after a year. Comparable on-line banks are paying as much as 0.95% on savings accounts and in many instances there is no minimum deposit requirement meaning that same $10,000 deposit will earn you $95 in a year. Now you will not be getting rich on a savings account but $94 is a difference worth pursuing if you ask me.
On-line banks are making banks and credit unions take a hard look at their fees and the way they treat customers. It will take a lot before they can compete with an on-line bank’s interest on deposits due to the significant difference in expenses they both incur. To find on-line banks all you need to do is perform a Google search and research your results.
While I mention Capital One 360 quite a bit in this blog, it is because I have used them for over a decade and have never once had an issue with them during that time. I am not endorsing Capital One 360 or being compensated for what I have said, but I have extensive experience with them and can discuss their service with confidence. If you need any additional information or have any questions feel free to contact me.
