by Elizabeth Aldrich | Feb. 7, 2021
Avoiding unnecessary fees and earning interest could be as easy as a few clicks.
If you've been hesitant to open an account with an online-only bank, you're not alone. However, you might be losing money.
A recent study on consumer banking preferences by The Ascent shows the majority of consumers still haven't opened an account with an online-only bank. What's more, almost a quarter of those surveyed said they wouldn't be willing to do so. Here's why that's a mistake.
Most traditional banks charge monthly maintenance fees to keep your checking and savings accounts open. These fees are unnecessary and eat into your hard-earned cash. Some accounts will waive the monthly maintenance fee if you maintain a certain balance or receive a certain number of monthly direct deposits. But you shouldn't have to worry about whether you're going to meet those requirements from month to month.
The vast majority of online banks don't charge any monthly fees for checking or savings accounts, and this alone is enough reason to switch.
ATM fees can add up. Either you have to go out of your way to find an in-network ATM, or you end up paying ridiculous fees just to withdraw your own money. Sometimes, you'll even get hit with two fees -- one from the ATM provider and one from your bank.
Plenty of online banks offer checking accounts that don't charge ATM fees. Some won't charge for using an out-of-network ATM and a couple even offer unlimited ATM fee reimbursements to cover any fees charged by ATM providers.
A typical foreign transaction fee is 3%, and you'll be charged this fee every time you use your debit card while abroad. This means that for every $1,000 you spend internationally, you'll be charged a $30 fee.
It's rare to find a debit card that doesn't charge foreign transaction fees, and even rarer to find one offered by a bank that doesn't charge monthly fees. However, there are several online banks that offer free checking accounts with no foreign transaction fees.
Most big banks will pay around 0.01% to 0.03% interest on your savings -- if that. And checking accounts rarely pay any interest at all unless you have an extremely high balance. This means your money is sitting there losing value against inflation.
Online banks offer something called high-yield savings accounts. These accounts can pay interest rates that are at least 10 times higher than a brick-and-mortar bank would pay. What's more, some online banks even offer checking accounts that earn interest.
It's not uncommon for big banks to have several different balance requirements for checking and savings accounts. Typically, they'll have a minimum opening deposit requirement of anywhere from $25 to $100 or more. They may also require you to maintain a minimum daily balance. This isn't feasible for everyone.
Online banks have much looser balance requirements. Many don't have any opening deposit requirements at all. The ones that do tend to be pretty low. Most don't require you to maintain a certain monthly balance either.
Online-only banks tend to be a lot more forward thinking about their online and mobile banking features. Many have incorporated all kinds of handy -- and free -- savings features and budgeting apps to help you manage your money.
Some online banks even incorporate budgeting apps and credit tracking tools into your account. This allows for a more robust banking experience to better keep your finances on track.
Some people worry online banks are somehow less safe and secure. But in general, this isn't the case. Most major online banks are FDIC insured, meaning your funds are protected -- typically up to $250,000. You'll also find the standard security and fraud protection features, such as multi-factor authentication, data encryption, and account monitoring at any good online bank.
As with anything, make sure to do your due diligence. When choosing an online bank, read reviews and comb through each account's features. That way you can make sure they're truly fee free, offer good rates, and have top-notch security. The right bank account could help you earn and save a lot more.
Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you more than 12x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2021.
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