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We all spend a lot of time online – nearly seven hours each day, according to research from GWI. Despite all this time on the internet, plenty of people still steer clear of online banks.
A recent Bankrate survey found that 49% of Americans don’t have a savings or money market account with an online bank. Since online banks tend to offer higher interest rates, almost half of respondents could be leaving money on the table.
If you’ve been reluctant to make the switch, it may be time to consider the benefits of an online bank. We’ll explore five common reasons people avoid online savings accounts — and why you should consider making the leap.
1. They don’t think online banks are secure
A common reason people avoid online savings accounts is security fears. Bankrate’s survey found that 32% of those without online savings accounts cite worries about the safety of their money as a major hurdle. But many of these concerns are unfounded.
For one, reputable online banks are FDIC-insured, just like traditional brick-and-mortar banks. That means your money is protected up to $250,000 per person, per account.
Some online banks are also affiliated with a well-known national bank. For example, online bank CIT Bank is merged with First Citizens Bank, a traditional bank. Bask Bank is an online bank and division of Texas Capital Bank.
It’s understandable to be cautious about online threats. But it’s important to know that cybercriminals often target both brick-and-mortar and online banks. To protect your information and your money, leading online banks use security measures such as:
- Multi-factor authentication
- End-to-end data encryption
- Fraud detection and monitoring
Many online banks also guarantee you’ll recover all your funds in the event of theft, fraud, or hacking. For example, Ally Bank promises not to hold any account holder liable for unauthorized online or mobile banking transactions, provided they report the incident within 60 days.
2. They prefer branch access
Being able to walk into a physical branch to speak with a customer service representative matters to many people. Almost half of respondents — 45% — say that access to local branches is why they don’t have an online savings account.
While in-person assistance can be helpful, consider the alternatives offered by online banks:
- Many leading online banks offer 24/7 customer service via phone or chat. This ensures you can receive assistance whenever you need it, even outside traditional banking hours.
- Online banks often offer various digital services, such as mobile check deposit, online bill pay, and account management tools, making handling your finances from anywhere easy.
If you value the ability to visit a branch, consider maintaining two accounts – one with a brick-and-mortar bank for immediate needs and another with a high-yield online savings account to maximize your earnings.
3. They see online banks as obscure or unfamiliar
Unlike large traditional banks that invest millions in advertising, online banks often have a smaller marketing budget, resulting in less visibility. Consequently, many people remain unaware of the existence and benefits of online savings accounts.
But the fact that you’re reading this article shows you’re now informed about the presence and potential of online banks. Online banks often provide a more consumer-friendly experience compared to big financial giants, with features such as no minimum deposit requirements, low (or no) fees, and competitive interest rates.
Some notable online banks include:
- SoFi
- Quontic
- Lending Club
- First Internet Bank of Indiana
- Varo Bank
By exploring your options, you can find the perfect fit for your financial needs and goals.
4. They don’t have enough savings to justify switching to an online bank
If you have a modest savings balance, you might question the value of transferring your money to an online bank for a better interest rate. In fact, 22% of Bankrate survey respondents believed their savings were too low to justify the switch.
But it’s important to recognize that even small savings can grow significantly over time, especially when paired with a competitive interest rate.
Let’s say you deposit $500 into a savings account and make $25 monthly contributions for three years.
- If you had left that money in a traditional savings account (earning 0.01% APY), you’d have $1,400.28 saved at the end — $0.28 of which is interest.
- But, if that money were in a high-yield savings account earning 5%, you’d have $1,546.05 saved at the end — $146.05 of which is interest.
The lesson here is clear. Even modest savings can lead to substantial interest when placed in a high-yield online savings account.
5. They think moving money is slower and more complicated with online banks
Some people worry that moving their money into or out of an online savings account will be a slow and cumbersome process. According to Bankrate’s survey, approximately 13% of people without online savings accounts express concerns about the speed and ease of transferring money.
Online banks use the same payment networks as brick-and-mortar institutions, such as the ACH network. This ensures funds typically move at the same speed regardless of the type of bank.
- Standard ACH transfers usually take three business days to process, whether initiated through an online or traditional bank.
- Some online banks offer expedited transfer options for a fee, allowing you to move money even faster when needed.
Of course, using an online bank isn’t always as liquid as a large national bank. Many online banks don’t have ATM access, making it hard to withdraw or deposit cash. Transferring money between your online bank account and an external account can take a few business days.
But if your goal is to save money, it may be smart to make your savings less liquid to reduce the temptation to spend.
Bottom line
While everyone’s financial goals and situations vary, we often share a common objective: to save more money. Online banks make this goal more attainable by offering some of the most competitive savings rates available. Some currently advertise more than 5% APY on their savings accounts.
As online banks are FDIC-insured and offer the same protections as traditional banks, the primary trade-off is the absence of physical branches. But in today’s digital world, leading online banks compensate for this with 24/7 customer support.
If you’re considering making the switch to an online bank, check out our guide.
Opinions expressed are author’s alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.