What To Look For When Switching From a Traditional Bank to an Online Bank
Traditional banks have a lot to offer, but they’re not always accessible or convenient. In some cases, they also charge higher fees or have lower annual percentage yields (APYs) than digital options.
Money: How Much Does the Average Middle-Class Person Have in Savings?
See: 5 Unusual Ways To Make Extra Money (That Actually Work)
But just because online banks come with a lot of potential benefits doesn’t mean all are created equally. Before you make the switch from a traditional bank to an online bank, it’s important to make sure it offers everything you need. That way, you can rest easy knowing your money is in good hands.
Here are the key traits to be on the lookout for as you start checking out online banks.
FDIC Insured
Traditional banks and credit unions are generally FDIC-insured up to a certain amount. This insurance means that your money across all checking and savings accounts at that bank is protected against bank failure or similar issues beyond your control.
Online banks are also often insured, but not always.
“FDIC insurance protects your deposits up to $250,000. The vast majority of online banks you see advertised will offer FDIC insurance, but you’ll want to make sure,” said Todd Stearn, founder and CEO of TheMoneyManual. “An FDIC-insured bank should clearly display the FDIC logo on their website, and the FDIC’s BankFind Suite tool lets you quickly and easily look up any bank and confirm that they offer this protection.”
Read: Here’s How Much You Need To Earn To Be ‘Rich’ in Every State
Standard Fees
Like brick-and-mortar institutions, online banks sometimes come with certain fees. Common fees include overdraft fees, monthly account maintenance fees, and foreign transaction fees.
Some online banks will waive these fees or have fewer of them to incentivize people to open an account. This is often possible because these banks have lower overhead costs and can therefore afford to charge less than their traditional counterparts.
Still, you’ll want to make sure before making the switch.
“So many people get caught off-guard by bank fees. Bigger banks have gotten very creative at coming up with new fees, while also not passing along profits gained from high-interest rates along to customers,” said Ben McLaughlin, the chief marketing officer and president of Raisin.
“On average, Americans are charged $133 on ATM fees and $300 on bank account fees like maintenance charges, withdrawal and transfer fees, and falling below minimum account thresholds,” McLaughlin continued. “These numbers can add up quite quickly–hidden fees from ATMs and banks cost Americans over $400 per person–totaling $95.8 Billion nationwide.”
Look for a competitive fee structure that has lenient overdraft fees, low or no monthly maintenance fees, and flexible transaction limits. Compare your options with other online and traditional banks to make sure you’re not getting charged for things you could have otherwise avoided.
Restrictions and Penalties
Online banks may have certain rules or restrictions you have to follow in order to avoid certain fees. If you’re not careful, these fees can add up and eat into your hard-earned money.
“Some accounts have minimum balance thresholds and then charge if you fall below that amount; some have account maintenance fees, fees for not having a certain number of transactions each month or not receiving enough direct deposits, or fees for making transfers or transactions,” said McLaughlin.
Before choosing to open an account at any bank, McLaughlin suggested taking a closer look at the bank’s terms and conditions so that you know about any and all fees — and how to avoid them. And once you have an account, keep an eye on any activity that might indicate you’re being charged.
Rates
These days, many banks have started offering interest-bearing checking accounts. And even though the interest rate usually isn’t as high as what you’d get with a savings account, choosing an account with a higher APY is generally wise. That’s because higher rates help your money grow faster while in that account.
“Online banks tend to have much higher APYs than traditional banks because of their reduced costs, but there’s still quite a bit of variation among digital banks,” said Stearn. “You’ll want to do a search of the top APYs online to make sure you’re getting the best rate possible. These rates are generally the biggest perk of dealing with online banks.”
Compare several online banks with your current bank and see if making the switch makes sense. If the online rates are much higher, it very well might.
Features and Tools
Look for any online features or tools the online bank offers before choosing it. This is more than just choosing an institution with a user-friendly application system and website. It’s also about finding one that makes managing your money easier.
For example, many online banks offer mobile banking services from your phone and computer. Others have free savings or budgeting tools you can use to make it easier for you to reach your goals and track your expenses.
Some online banks have what’s called a “buckets” system. With this, you can organize your money into separate categories and track your spending and savings.
Other key features to look for include mobile deposits, contactless payments, direct deposit, and automatic savings options.
ATM Access and Customer Service
Having easy access to a network of ATMs is important, even if you’re with an entirely digital bank. You never know when you might need to withdraw some cash or make a quick deposit at a machine.
“Review the bank’s website carefully before transferring your funds to make sure they offer all the services you need,” said Stearn. “For example, if easy ATM access is important to you, make sure the bank offers ATM access in locations that will work well for you. Make note of all the ways you interact with your current bank so you’ll have a checklist of items you’re looking for.”
Good customer service is also key, so be sure to check out any reviews or ratings on sites like Trustpilot or the Better Business Bureau to see what other people are saying. Keep an eye out for things like responsivity, friendliness, and professionalism. The last thing you need is to end up at a bank that is hard to reach when you need help with your account.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: What To Look For When Switching From a Traditional Bank to an Online Bank
