Gone are the days when you’d queue for long hours at the banking hall to make a simple transaction like sending and receiving cash. In today’s digital age, you can access your bank account anytime from anywhere. This is where virtual banks come in.
Virtual banks are online-only banks that offer the same services as traditional banks, but everything is done online and open 24/7. This means you can make transactions anytime with just a few clicks of a button on your phone or computer. In addition, nearly all virtual banks have a mobile app to help manage your finances on the go.
In this post, we’ll discuss why virtual banks are on the rise, how they differ from traditional banks and the pros and cons of virtual banking. You’ll also learn whether virtual banks are safe and how to choose one.
The Surge of Virtual Banking
Virtual banking has become increasingly popular in recent years due to the growing demand for more convenient and accessible banking services.
One of the major contributors to the rise in virtual banks is the advancement in technology. This has made it easier for banks to offer online banking services. With the increase in smartphone and internet usage, consumers can now access banking services anytime, anywhere.
Another factor that contributed to the surge of virtual banking is the COVID-19 pandemic. With the pandemic restricting physical movements and limiting face-to-face interactions, many people have turned to online banking as a safer and more convenient way to manage their finances.
Traditional vs. Online vs. Virtual Banking
One key difference between conventional, online, and virtual banking is location.
Traditional banks have brick-and-mortar locations, offer a wide range of products, and provide in-person customer service. Because of that, traditional banking tends to come with higher fees because they have more operational costs.
On the other hand, online banks allow you to perform financial transactions using the internet. Online banking is sometimes referred to as internet banking. Online banks offer nearly every service available at traditional banks. The only difference is that you don’t have to visit a local branch to complete the most basic banking transactions.
Virtual banks have no physical locations and require you to do everything digitally. Whether you want to check your bank account balances, send money, or perform any other transaction, you can do it right from the mobile app offered by the virtual bank. Since virtual banks have little operational costs, they often come with lower fees and higher rates of return.
The Pros and Cons of Virtual Banking
Virtual banks come with several benefits compared to traditional banks. But, like any other financial product, they also have setbacks. Weighing the pros and cons of virtual banking will help you decide whether it’s the best banking solution for you.
Advantages of Virtual Banking
- Convenience: One of the major advantages of using a virtual bank is convenience. Provided that you have an internet connection, you can perform all your transactions anytime from anywhere. Whether transferring money between accounts, paying bills, or checking your balances, you can do everything with a few taps on your mobile phone. What’s more, you can deposit checks remotely. In short, a virtual bank lets you keep tabs on your finances from anywhere.
- Lower fees: Virtual banks tend to have lower fees than traditional banks because they have fewer overhead costs. Most virtual banks have no minimum account balances, monthly maintenance fees, overdraft fees, and foreign transfer fees. This means you can save a lot of money on fees.
- Better interest rates: The absence of significant infrastructure and overhead costs in a virtual bank means higher interest rates or annual percentage yields (APY) on savings. The most generous virtual banks offer 1% to 2% more than what you’ll earn in a traditional bank.
- Full control over your account and bank information: Another benefit of using a virtual bank is that you have complete control over your account. You can decide what happens to your finances at every point in time.
- Online bill payments: The ability to pay your bills online is another benefit of virtual banking. You can set automatic bill payments so you don’t get late paying your bills. With the online bill payments feature, monitoring all your bills in one place is easy.
Disadvantages of Virtual Banking
- No personal relationships: A traditional bank offers the opportunity to interact with the staff at your local branch, especially if you need additional financial services, such as a loan. With virtual banking, you’ll have limited in-person help and fewer opportunities to build personal relationships because there’s no physical location.
- Absence of their own ATMs: Virtual banks don’t have their own ATMs. Instead, it relies on ATM networks, such as those from Allpoint. While these systems offer access to thousands of ATMs nationwide, they often come with high fees.
- Cash deposits can be challenging: While depositing a check with an online bank is possible using the mobile banking app, you can’t deposit cash. This can be so inconvenient. For example, you may need to find a deposit-accepting ATM or transfer funds from your other bank account to your virtual bank account.
- Less flexibility in performing transactions: Virtual banks are suitable for carrying out basic banking transactions, such as transferring money between accounts and paying bills online. Most virtual banks don’t have a global outlook, so there’s less flexibility in completing transactions like sending payments to various currencies across the globe.
How to Choose a Virtual Bank
Virtual banks offer a wide range of benefits compared to brick-and-mortar financial institutions. However, not all virtual banks are created the same. Here are some of the factors to consider when choosing a virtual bank.
- Safety: The safety of your funds is very important. Look for a bank that’s insured by the Federal Deposit Insurance Corporation (FDIC), which offers up to $250,000 in deposit protection. This means you won’t lose your money in the event of a bank failure.
- Fees: While virtual banks have lower fees compared to traditional banks, it’s still worth it to compare fees from various virtual bank providers. High fees can eat up your bank account balance. As such, look for a virtual bank with the lowest fees possible. This includes monthly maintenance fees, ATM fees, and overdraft fees.
- APYs: If you want to grow your idle cash, consider a bank with the most competitive interest rates. Some virtual banks offer up to 4% APY on savings, so it’s a good idea to shop around for the best rates.
- Mobile banking experience: Convenience is key in the world of digital banking. The best virtual banks offer user-friendly mobile banking apps to conduct transactions on the go. Read reviews from past users on App Store and Google Play store to get insights into the mobile banking experience before downloading it.
- Money management tools: If you want more than just a mobile banking app, look for a digital bank that offers money management tools that can help with budgeting, saving, or investing. Being able to keep tabs on all your finances in one place is great.
- Customer service: Virtual banking is purely online. That’s why you must keep customer support in mind when shopping for a virtual bank. Consider a bank with live chat or customer service representatives available to help 24/7.
Are Virtual Banks Safe?
One of the major concerns regarding virtual banking is safety. Like traditional banks, virtual banks are safe, provided that the FDIC federally insures them.
The FDIC offers up to $250,000 protection on your deposits, per depositor, per bank. To find out if a virtual bank is FDIC-insured, visit their official website and look for an emblem reading “FDIC-insured.” Alternatively, you can use FDIC’s BankFind Tool to confirm if a virtual bank is insured.
While internet banking can be scary due to the rising number of scammers and hackers, these banks are taking extra security precautions to ensure your personal information is safe.
How to Get Started with Virtual Banking
The adoption of virtual banks is on the rise, given their convenience and many other benefits. If you’re looking to switch from traditional banking to digital banking, finding the best virtual bank is key.
The best digital bank offers more than just online banking services. They provide management tools, better rates on your savings, top-tier rewards programs, and other perks. Look for an account with the following features:
- Debit card with rewards: You can use these cards to make purchases or withdrawals and earn points on card swipes for shopping at participating merchants.
- Virtual Card: Some banks offer virtual cards that you can use as you wait for your physical card to arrive in the mail. Like the debit card, you can use the card anywhere Visa is accepted and choose your PIN.
- Overdraft protection: look for banks offering overdraft protection. To qualify for the free overdraft, you may need to set up and receive a qualifying direct deposit.