Published in: Banks | Feb. 16, 2020
Why Are So Many Americans Switching to Online Banking?
By: Dana George
Online banking is growing, and here are some of the reasons why.
It's fun to imagine what Alexander Hamilton would think of online banking. By all accounts, Hamilton was a forward-thinking guy. When he was Secretary of the Treasury, Hamilton pushed for a national bank, a daring proposal at the time. Thanks to his persistence, the first brick-and-mortar bank opened in the U.S. in 1791.
And American banks worked the same way for nearly 200 years. People would walk into a building and conduct their banking business, aided by bank staff. By the 1980s, ATMs were widely available, and customers could conduct some of their banking activities without the assistance of staff. By 2006, 80% of American banks offered online services.
And then came online-only banks, financial institutions with no brick-and-mortar presence.
Four reasons people are switching to online banks
As the name implies, customers access these banks' services online. There are no tellers, no drive-up transactions, no bowls of candy on the counter. Online banking -- or internet banking -- allows you to manage your money from a computer or mobile device.
It's hardly surprising that after more than 200 years of doing things the same way, the switch to online-only banks has not happened at lightning speed. As many as 96 million Americans have remained loyal to their original banks. But for those who have made the switch, the reasons for doing so are plentiful.
There is nothing more convenient than being able to take care of all your banking needs while still in your pajamas. If, like some of us, you occasionally wake in the middle of the night and wonder if you paid a bill or made a deposit, you can pull the information up on your smartphone or computer. If you have a check to deposit, all you need is your online bank's app on your phone to do so. You simply snap a picture of both sides of the endorsed check and click "submit."
While most traditional banks also offer the convenience of online banking, online-only banks tend to put more resources into this type of technology. After all, it's their equivalent of a branch.
Online-only banking allows you to keep an eye on all of your accounts in one place, a particularly attractive benefit if you run a small business. Imagine being able to gather all your tax records in minutes.
2. Lower fees
If you have to maintain a minimum balance in order to avoid fees at your current bank, you will likely find online banks more forgiving. Most offer no-strings checking accounts, that don't charge extra fees for low balances.
Some online banks offer fee-free withdrawals from any ATM and will even reimburse you if the host ATM charges you. For example, say you need to take cash out of an ATM owned by a different bank or convenience store. If that bank or convenience store charges you a fee for the service, your bank will put the money back into your account. Simply put, online banks help you avoid unnecessary fees.
3. Favorable interest rates
Online banks can offer higher interest rates on their deposit accounts because they have lower overheads than brick-and-mortar banks. If you are someone who likes to maintain a high checking or savings account balance, it's definitely worth exploring the great rates offered by the best online savings accounts.
4. Cutting-edge technology
Technology is an online bank's bread and butter, one of the things that sets it apart from the competition. For that reason, you can count on an online-only bank to have the latest in full-featured apps, encryption, and other enhancements that simplify your banking experience. Some online banks offer budgeting and savings tools to help you reach your financial goals, while others will help you keep track of your credit score.
The best of both worlds
Online banks have a lot to offer, but nothing in this world is perfect. Here are two issues that may put you off: You cannot directly deposit cash, and some of them are not full-service. For example, some online banks offer brokerage accounts while others do not. Some sell insurance products, while others do not. In addition, if you need services traditionally found at a brick-and-mortar bank -- like notarization or safe deposit box rental -- you won't be able to access them through an online-only bank.
There is, however, a workaround. Keep part of your money in a local bank or credit union with free checking. If you have cash that you would like transferred into your online-only bank account, deposit it first into your local account, write yourself a check, then scan it into your online account like you would any other deposit.
Keeping an account at a brick-and-mortar financial institution and opening another at an online-only bank offers the best of both worlds. You have access to the personalized services you need at your local bank, and are able to earn more in interest from your online account.
Online banking is easy, it's fast, it's convenient, and it can earn you money. The only thing to do now is to choose an online account that meets your needs.
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