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We all spend one LOT time online – nearly seven hours every day, according to research from GWI. Despite all this time online, many people still shy away from online banking.
A recent Bankrate study found that 49% of Americans do not have a savings or money market account at an online bank. Since online banks tend to offer higher interest rates, almost half of respondents may be leaving money on the table.
If you’ve been hesitant to make the switch, it may be time to consider the benefits of online banking. We’ll look at five common reasons people avoid online savings accounts — and why you should consider taking the plunge.
1. They don’t think online banking is safe
A common reason people avoid online savings accounts is fear of security. Bankrate’s survey found that 32% of those who don’t have an online savings account cite concerns about the safety of their money as a major obstacle. But many of these concerns are unfounded.
For one, reputable online banks are FDIC-insured, just like traditional brick-and-mortar banks. This 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, the online bank CIT Bank has merged with First Citizens Bank, a traditional bank. Bask Bank is an online bank and a division of Texas Capital Bank.
It’s understandable to be wary of online threats. But it’s important to know that cybercriminals often target both brick-and-mortar and online banks. To protect your information and money, major online banks use security measures such as:
- Multi-factor authentication
- End-to-end data encryption
- Fraud detection and monitoring
Many online banks also guarantee that you will recover all your funds in case 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 entry
Being able to walk into a physical branch to speak with a customer service representative is important to many people. Almost half of respondents – 45% – say access to local branches is the reason they don’t have an online savings account.
While in-person assistance can be helpful, consider the alternatives offered by online banks:
- Many major online banks offer 24/7 customer service via phone or chat. This ensures that you can get help whenever you need it, even outside of traditional bank hours.
- Online banks often offer various digital services, such as mobile check deposit, online bill pay, and account management tools, making it easy to handle your finances from anywhere.
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 banking as vague 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 are reading this article shows that you are now aware of the presence and potential of online banking. Online banks often offer a more customer-friendly experience than the big financial giants, with features such as no minimum deposit requirements, low (or no) fees, and competitive interest rates.
Some popular online banks include:
- SoFi
- Quantum
- Lending Club
- Indiana’s First Internet Bank
- Bank of goods
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 may 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 add up significantly over time, especially when coupled with a competitive interest rate.
Let’s say you deposit $500 into a savings account and make monthly contributions of $25 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 in 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 in the end — $146.05 of which is interest.
The lesson here is clear. Even modest savings can lead to significant interest when placed in a high-yield online savings account.
5. They feel that moving money is slower and more complicated with online banking
Some people worry that moving their money in or out of an online savings account will be a slow and cumbersome process. According to Bankrate’s survey, roughly 13% of people without an online savings account 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 that funds usually move at the same speed regardless of the type of bank.
- Standard ACH transfers typically 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 do not have access to ATMs, making it difficult to withdraw or deposit cash. Transferring money between your online banking account and an external account may take several business days.
But if your goal is to save money, it can be smart to make your savings less liquid to reduce the temptation to spend.
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While everyone’s financial goals and situations differ, we often share a common goal: 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.
Since online banks are FDIC-insured and offer the same protections as traditional banks, the main trade-off is the lack of physical branches. But in today’s digital world, leading online banks make up for it with 24/7 customer support.
If you’re thinking about switching to online banking, check out our guide.
The opinions expressed are solely those of the author, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, endorsed or otherwise approved by any of the entities involved in the post.
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