Banks have a simple concept. You can open an account and deposit funds by providing your personal ID and social security number. Banking has become more exciting since its early days, and online banking is the new frontier. If you’re considering online banks, you’re not alone. Several online banks have millions of users, and their suite of perks suggests more growth in the future. Many of these fintech service providers offer high APYs, lower fees, valuable rewards, innovative money-management tools, and 24/7 access to your money.
Online banking is innovative, only held back by its novelty. People have stored their money in physical banks for centuries and have heard of online scams. Traditional banking feels safer because of people’s familiarity with the concept. Many people’s parents and grandparents have used physical banks. Online banking is a new model that is safe.
Just like traditional banks, many of these virtual banks have FDIC insurance, protecting up to $250,000 in each bank account. This fundamental insurance protection is one of the many ways online banks keep your finances safe. Read on to learn more about how online banks work and the measures they have in place to keep your funds safe.
What Are Online Banks?
Online banks are financial entities that do not have brick-and-mortar locations, unlike traditional banks. Instead, all business is handled electronically. As a result, cost savings are typically passed on to customers through more generous earnings on savings accounts and higher interest rates on loan products.
Physical banks have taken notice of online banking’s popularity and convenience for customers. Many traditional banks have mobile apps that let you transfer funds, deposit checks by taking screenshots and perform other tasks from anywhere. Brick-and-mortar banks are making their customers less reliant on their physical branches, but they have overhead which hurts the return on your savings account.
Online Banks: Are They Really Banks?
Some banks only operate online but function like regular banks. The best online banks let you deposit money, reach out to quality customer service, get a credit card, and do other things you can do at a physical bank. There are also financial technology companies, like Current, who partner with FDIC-insured banks to offer online banking services to their customers. This arrangement is referred to as neo-banking. You can deposit money to build your account and withdraw it when you need it. Many online banks have ATM networks that help customers save on fees. Some online banks reimburse you for ATM fees.
Online Banks vs. Traditional (Brick-and-Mortar) Banks
Online banks conduct all operations online. However, brick-and-mortar banks have physical branches you can visit. Many also offer online banking services for added convenience. For example, you can download banking apps on your mobile phone and do all of your banking without visiting a local branch. If you become comfortable with a traditional bank’s online features, you will have an easier transition to online banking. You’ll save time traveling back and forth from your home to the bank, and virtual banks can provide better features than their physical counterparts.
Pros of Online Banks
Highest APYs Nationwide
You’ll generally find some of the highest annual percentage yields at online banks since they can cut costs and pass these savings on to account holders. Tired of barely being able to afford a cup of coffee with your bank’s savings rate? You can earn far more with an online bank. Some online banks yield as much as 4% APY on their savings accounts.
Large ATM Networks
Most reputable online banks are members of extensive ATM networks, like All Point. This means account holders have access to several thousand fee-free ATMs nationwide. In addition, some online banks take it further by reimbursing fees incurred at out-of-network ATMs. Traditional banks do not have as much flexibility with fee reimbursement due to their overhead costs.
You can also expect to pay little to no fees with an online bank account due to lower operating costs. This means you probably won’t be subject to account minimums or monthly fees for maintenance. Online banks also have more lenient policies than traditional banks. Current’s Overdrive feature lets you overdraw your account up to $200 before charging overdraft fees. Traditional banks would start charging overdraft fees the moment your bank account got overdrawn by a single cent. The Overdrive feature can save you considerable money, especially if you find yourself barely overdrawing your account from time to time.
Access Your Funds Anytime, Anywhere
Online banks offer mobile banking apps that allow you to keep tabs on your money 24/7. You can log into your account from your computer, mobile phone, or any other device to review bank accounts, pay bills, and perform other tasks with your money.
Account holders enjoy the same convenient features as individuals with brick-and-mortar banks. Some online banks offer best practices for sharpening your finances and offer better features than traditional institutions. Online banks often have features that improve your credit score and invest in assets.
Better Value and Rewards
Some online accounts also offer cashback and member incentives for every dollar spent using your debit card. These rewards are easy to earn and could add up over time. Most people have to use credit cards to get some type of compensation for their spending. Online banking gives debit card holders more choices, and their virtual cards can make you less vulnerable to identity theft. You can freeze your debit card upon seeing suspicious activity and protect your personal details while getting generous rewards for your spending.
Better Experience And Service
Most banks and credit unions offer customer support during the week. However, they typically aren’t available after hours unless there’s an emergency. But with an online bank, you could have access to account representatives around the clock on both weekdays and weekends.
Are Online Banks Safe?
Yes, online banks, just like traditional banks, are safe. Both banks use several security measures, such as two-factor authentication, to keep customers safe. In addition, they have secured bank connections and transactions and government-backed deposit insurance. As the features and general business models of both banking models get blurrier, it makes more sense to opt for a banking model that helps you build wealth faster.
Safety And Security Features
Below are some of the vital safety measures online banks implement to protect your information from hackers and fraudsters:
- Encrypted data to minimize the occurrence of financial fraud
- The ability to pause and resume transactions to prevent unauthorized spending
- Biometric Authentication (i.e., Touch ID or Face ID) that integrates with your smartphone
- Password requirements that add more protection to sensitive information (i.e., requiring at least one special character in your password).
- Software updates to address any issues. You will receive a notification from the app store when each update is available.
Secured Bank Connections and Transactions
All transactions conducted by online banks are done through a secured connection. Furthermore, auto fraud detection and AI-driven security features are in place to keep your information safe.
Your Money Is Insured By Partner Banks
Many online banks are insured by the Federal Deposit Insurance Corporation (FDIC). Some neo banks also offer FDIC insurance through financial institutions they partner with to provide financial services.
Tips To Keep Your Account Safer
Although online banks are safe to do business with, there are actions you can take to make your account more secure. The risks of online banking are similar to the risks you would find at a traditional bank, but you can protect your online banking information with these best practices:
- Avoid accessing your bank account on public wi-fi networks or a public computer.
- Create a strong password and update it often.
- Keep your online banking passwords secure.
- Confirm the bank’s website is secured by checking to see if they use an HTTPS web address.
- Use multi-factor authentication to access your account.
- Secure your laptop, desktop and other electronic devices with unique passwords.
- Opt to receive real-time purchase and fraud alerts.
- Shield login authentication codes from others.
- Never respond to suspicious phone calls, phishing emails or text messages requesting your bank account information or sensitive personal information.
How to Choose Which One is Right for You
Are you ready to upgrade your experience? There are several online financial platform options, but Current is an option worth placing at the top of your list. It’s an innovative financial technology platform that offers FDIC-insured accounts through Choice Financial Group, Member FDIC.
Get started with Current today by downloading the mobile app on Google Play or the AppStore and opening an account. Register by entering your mobile number; signing up only takes a few minutes of your time.