Are Online Banks Safe? The Best Online Banks to Consider
In 2020, it seems as if all banks have made the switch to digital solutions. Even America’s most well-renowned banks have some aspect of digital banking. But there is another sector altogether, online banking. These banks do not have physical locations, making some skeptical about their services.
Keep reading to learn if online banks are safe and when you should consider a digital banking solution.
Online Banks are Protected by Federal Mandates
All banks, digital or physical, are federally mandated to ensure proper operations given any circumstance. This means that banks are required to maintain a certain amount of cash for customers to withdraw among many other requirements.
Banks are also required to hold large insurance policies on your money in the extreme circumstances that your money is lost. The FDIC will insure accounts for up to $250,000, which should ease some of the anxiety that comes with owning an online bank account.
Physical Banks Have Their Own Set of Risks
Whenever we think of digital banking, some people think that hackers will be capable of stealing their money right from under them. And while there is some possibility of that, physical banks pose their own safety concerns. Just as a hacker has the potential to steal your money online, a burglar has the same capabilities.
This is why your money is guaranteed whenever held by a bank. Banks will hold insurance policies so that in the case of theft, customers aren’t out of luck when it comes to their money.
Digital Security Enhancements
Over the past decade, digital security has been at the forefront of many businesses including the financial industry. Two-factor authentication has become standard when logging into an account online, adding an extra layer of safety to your account and information.
More recently, phones and other devices have made the switch to biometrics to access information, making it extremely difficult to access your device for thieves.
Best Online Banking Options
Below are some of the most popular online banking options. Most of them will offer similar capabilities.
SoFi made a splash into the banking system by offering a high-interest checking account that offered almost 10 times the national average.
SoFi originated in the lending space as a leader of student loan refinancing. They have expanded the products to include mortgage refinancing among other offerings. These products enable SoFi to offer such a large interest rate on their checking accounts.
Need another reason to consider SoFi? They have also offered stock trading capabilities and have gone even further, allowing individuals to purchase “stock bytes”, or less than one share of stock. This has been well received by millennials wanting to invest in their favorite companies but might not be able to afford a full share of a large company like Amazon or Alphabet.
Ally launched its digital banking solution in 2010 amongst the disaster known by all as the Great Recession. They were able to thrive among a fear-ridden society because of the convenience offered and above-average interest rates.
Ally has been around for quite some time now with their initial operations launching in the early 1900s. When their doors first opened, their primary business was auto lending as a part of GM. Since then they have evolved into the banking industry.
Similar to SoFi, Ally offers many different financial services including checking accounts, auto loans, home loans, and investing accounts.
Reasons to Consider an Online Bank
Many people are hesitant to work with a bank in which they cannot go to a local branch to withdraw money. And that’s understandable. However, online banking brings several benefits that many physical banks cannot.
High Savings Interest Rates
Physical banks have much greater overhead compared to online banks. Their location, employees, and utility costs are all passed on to the customer in some way.
Online banks have the luxury of avoiding these costs, letting them pass them through to the customer in the form of higher interest rates for savings and checking accounts.
No Travel & Transportation
Having to make your way to a physical banking branch can be an inconvenience. Online banks can be as simple as logging on and starting a chat or just one phone call away.
Many online banks have the option to deposit checks right from the app using a camera to capture the details. This can save you the time it would take to drive to your local bank and deposit your check-in person.
No ATM Fees
Many online banks will cover any ATM fees, making it easy for you to access your cash when you need it. You should always check to ensure the ATM you plan to use is covered to avoid any fees that could come with it.
Low to No Minimum Balances
Some of the large banking institutions will require a minimum balance to maintain your account and if you do not meet these requirements you might be assessed an account maintenance fee. Most online banks do not have any minimum balances, keeping more cash in your account.
Most online banks will have operators available to chat at any minute, yes that includes throughout the evenings and weekends. Some physical banks may not offer this availability making it more challenging to arrange a time to discuss your needs.
Reasons to Consider a Physical Bank
Some people may prefer a physical banking location or several other reasons.
You Value Relationships
If you are the type of person who values relationships and trusts people, a physical bank might be a better option for you.
You Have Cash Deposits
Unfortunately, online banking options do not have the functionality to offer cash depositing. Therefore, those who make standard cash deposits might want to consider a physical bank to meet their needs.
Consider Multiple Accounts
If you cannot decide between a physical or online bank, you can choose to open one of each. There is no set limit on the number of accounts you can have, so opening a couple of accounts might be worth the time. The same goes for the number of email accounts you should have.
It is common for some to take advantage of the high-interest rates an online bank will offer and the convenience of a physical bank that allows for cash depositing. You can then transfer your money between the banks to give you the flexibility and benefits of both.
Digital security has become a priority for almost every institution, especially those in the financial or banking services industry. The vast adoption of security technology like biometric logins and two-factor authentication has made online banking safer than ever. Add in the standard $250,000 of FDIC insurance, and your mind should be at ease.
For some, however, a physical option might be preferred. Those who value relationships or have many cash deposits, a physical bank might be right for you.
Do you have an online bank? Tell us your thoughts below!