Is an Online Bank Right for You?

More people are opting not to bank with a brick-and-mortar financial institution.

You may be asking yourself, what is an online bank? An online bank is a financial institution that operates without any physical branches. These banks typically have strong mobile apps and customer service options as well as higher interest rates than their brick-and-mortar competitors.

If there are no branches, how do you open an account? Online, of course. It’s quick and easy. Generally, all it takes is creating a username and password and entering some personal information. You’ll also need to fund your new account which can be done by making a transfer from an existing account.

What about making deposits and withdrawals? Most online banks are affiliated with ATM networks that allow customers to make deposits and withdraw cash. Some online banks only allow online transfers into and out of the account; in that case you will need to have more than one bank account to access your money. Most banking apps offer mobile deposit which allows customers to scan checks for deposit into their account. You can also choose to have your paycheck directly deposited into your online account.

But what about security? Are online banks safe? According to BankRate.com online banks are typically safe. Most use data encryption and others allow customers to opt in to two-factor authentication when logging into their accounts. Two-factor authentication is an extra layer of security used to ensure that people trying to gain access to an online account are who they say they are. First, the user will enter their username and password. Then instead of immediately gaining access to the account, they will be required to provide another piece of information. Online bank customers need to ensure that their passwords are strong to maintain the security of their accounts.

Additionally, most online banks are insured by the Federal Deposit Insurance Corporation (FDIC). Your accounts are covered up to $250,000, in the unlikely event that the bank goes out of business.

Let’s look at four online banks:

1. Ally Bank offers savings accounts, checking accounts and certificates of deposit. You cannot deposit cash; accounts must be funded through a transfer from another financial institution. Deposits may be made using their mobile check deposit, direct deposit or via a wire transfer. You may also make a deposit via wire transfer. Ally belongs to a nationwide ATM network, so customers are able to make cash withdrawals.
2. Monifi offers a savings account and checking account, the Save Balance, and the Spend Balance, both are free. The Monifi app allows customers to set savings and spending goals and to transfer between accounts. Deposits to Monifi can be made via transfer from another bank, through Zelle®¹, mobile check deposit, direct deposit, or wire transfer. Cash withdrawals may be made via a nationwide ATM network.
3. Varo offers savings accounts and checking accounts. Deposits can be made via mobile check deposit or direct deposit of your paycheck. With Varo customers are also able to deposit cash at a third-party retailer that participates in the Green Dot network, such as 7-Eleven, CVS, or Walgreens. Fees may apply for the transaction. Varo belongs to a nationwide ATM network for cash withdrawals.
4. Discover Bank offers savings accounts, checking accounts and certificates of deposit. Customers may use mobile check deposit, Zelle® or direct deposit to fund their account. Discover Bank does not accept cash deposits. Access to a nationwide network of ATMs is available for cash withdrawals.

Online banks provide the ultimate convenience, providing 24/7 access to your money from your mobile phone or tablet. No need to worry if the bank is open or if there’s a line at the teller window or drive up. You can check your balance, transfer funds, or deposit a check all with a banking app.

According to businesswire.com², 21% of all consumers use an online only bank as their primary financial services provider. The highest usage (29%) for any age group is among consumers ages 35-44, which spans both the Millennial and Gen X generations.  26% of 25- 34-year-olds use online only banks as their primary provider, followed by 24% of 18–24-year-olds.

If you’re not ready to switch to an online bank, you have options. Most brick-and-mortar banks offer online banking and mobile banking apps so you can experience the best of both worlds.

¹Zelle® is an easy way to send money directly between almost any U.S. bank accounts typically within minutes. With just an email address or mobile phone number, you can quickly, safely and easily send and receive money with more people, regardless of where they bank.

² https://www.businesswire.com/news/home/20211014005282/en/Digital-Banking-Gains-Momentum-as-Consumers-Use-More-Accounts-for-More-Purposes