The Pitfalls of Online Banking and How to Address Them
Introduction
If you’ve been tuning into the personal finance space lately (perhaps reading The Ascent?), you’ve no doubt heard a lot about exclusively online banks. These are banks which exist only in cyberspace and not as physical buildings in your city. These two banking options have different advantages and disadvantages, so it’s important to know the whole story if you’re looking to open a new bank account. In this article, we will take a closer look at two specific pitfalls that arise with online banking and discuss how you can address them.
1. Withdrawing Cash
One of the main drawbacks of online banks is the limited access to physical currency. If you need to withdraw cash from your account, you may need to take a few additional steps. For instance, you could consider opening a bank account with a brick-and-mortar bank that is linked to your online bank account. By doing so, you can have access to the cash that’s in your linked savings account. While the savings account may not come with an ATM or debit card, the checking account from the brick-and-mortar bank will. You can transfer the money from your savings to checking and then withdraw it using the card.
If you don’t need to withdraw cash frequently, you may find this workaround to be sufficient. However, if you are someone who relies on cash for random expenditures, it is essential to ensure that the online bank you’re considering has fee-free ATMs in your area or offers ATM fee refunds. While it may be challenging to find a savings account that comes with an ATM or debit card, you can still transfer cash to a checking account at the same bank or transfer it to an account at another bank from which you can then withdraw cash.
2. Depositing Cash
On the other hand, if you frequently receive cash payments, such as being a small business owner or earning tips, it may be difficult to deposit them into an online bank account, especially if your bank doesn’t have ATMs that accept cash deposits. In such cases, there are alternative solutions, but they do involve additional steps.
For example, if you have a brick-and-mortar bank where you can deposit cash, you can deposit the cash into that bank and then transfer it to your online bank account. Fortunately, with the availability of payment apps that work with both banks, such transfers can be done instantly. While this system might require some additional effort, it allows you to enjoy the benefits of an online-only bank while still being able to deposit cash when needed.
The Benefits May Outweigh the Drawbacks for Many People
Despite these two pitfalls, many individuals find that the benefits of online banking far outweigh the inconveniences associated with cash withdrawals and deposits. Online banks often offer higher Annual Percentage Yields (APYs) on savings accounts compared to traditional banks due to their lower overhead costs. As of this writing, the average APY on savings accounts is just 0.43%, while some of the best savings accounts featured on The Ascent’s list offer even higher APYs, such as 4.25%. This significant difference in interest rates can make a substantial impact on your money’s growth over time.
In addition to higher APYs, online banks frequently provide a more user-friendly experience through their websites and banking applications. Conducting all your banking activities online can be convenient and time-saving, allowing you to manage your finances from the comfort of your own home. Furthermore, online banks often charge fewer fees on their accounts, and in some cases, no fees at all. The combination of higher interest rates and lower fees makes online banks an attractive option for many individuals seeking a banking experience that aligns with their financial goals.
These Savings Accounts are FDIC Insured and Could Earn You 12x Your Bank
While online banking offers several advantages, it’s essential to understand that many people miss out on guaranteed returns by keeping their money in traditional bank savings accounts. These accounts often offer meager interest rates, resulting in minimal earnings. To address this issue, The Ascent has curated a list of the best online savings accounts that could earn you up to 12 times the national average savings account rate.
By choosing one of these recommended online savings accounts, you can maximize your earnings and benefit from FDIC insurance, which ensures that your deposits are protected up to $250,000 per depositor, per FDIC-insured bank. These accounts provide a great opportunity to grow your savings significantly and make the most of your hard-earned money.
Conclusion
Overall, online banking offers a range of benefits, including higher interest rates, lower fees, and convenient digital banking options. While it may present challenges when it comes to withdrawing and depositing cash, there are practical solutions available, such as utilizing linked brick-and-mortar bank accounts or payment apps. The ability to manage your finances securely and efficiently from anywhere makes online banking an attractive choice for many individuals. By understanding the limitations and knowing how to address them, you can make an informed decision about whether online banking is the right choice for you.
Summary
In recent years, the rise of online banks has brought about significant changes in the personal finance space. These banks, which operate solely in cyberspace without physical branches, offer distinct advantages and disadvantages. While online banking provides higher interest rates, lower fees, and convenience, two primary pitfalls arise: withdrawing cash and depositing cash. However, there are practical ways to address these challenges.
When it comes to withdrawing cash from an online bank account, having a linked brick-and-mortar bank account can provide access to physical currency. By transferring money from a savings account to a checking account and using the associated debit card, users can withdraw cash when needed. Alternatively, some online banks have partnerships with fee-free ATMs or offer ATM fee refunds, making it easier to access cash.
Depositing cash into an online bank account can be trickier, particularly if the bank lacks ATMs that accept cash deposits. However, individuals can deposit cash into a brick-and-mortar bank and then transfer it to the online account. This can be done instantly using payment apps that work with both banks.
Despite these challenges, the benefits of online banking often outweigh the drawbacks. Online banks typically offer higher APYs on savings accounts due to lower operational costs. Managing finances through online platforms and mobile applications is convenient and user-friendly. Additionally, online banks often have lower or no fees compared to traditional banks.
To make the most of online banking, it is crucial to choose a bank that aligns with your needs. Researching whether an online bank has fee-free ATMs or accepts cash deposits, when required, can help mitigate the withdrawal and depositing challenges. By understanding the limitations and advantages of online banking, individuals can make an informed decision and effectively manage their finances.
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If you’ve been tuning into the personal finance space lately (perhaps reading The Ascent?), you’ve no doubt heard a lot about exclusively online banks. These are banks which exist only in cyberspace and not as physical buildings in your city. These two banking options have different advantages and disadvantages, so it’s important to know the whole story if you’re looking to open a new bank account. Let’s take a look at two pitfalls that arise specifically with online banking and see how to address them.
1. Withdraw cash
Since online banks are, well, online, they don’t fare very well with physical currency. That is, if you need to withdraw cash from your account (rather than access it through other means), you may need to take a few additional steps. I have four bank accounts with two different banks, one of which is online. I specially opened to Bank account with that bank so you can have access to the cash that’s in the linked savings account – that account didn’t come with an ATM or debit card, but the checking account did. Then I transfer the money from savings to checking and then I can withdraw it using the card.
I don’t need to withdraw cash very often, but I like to keep some on hand in case of random cash expenditures. Luckily, my online bank has a pretty robust ATM network, so I have no problem withdrawing money when I need it.
If you spend a lot of cash, make sure the online bank you’re considering has fee-free ATMs in your area or offers ATM fee refunds. And unfortunately, you’re not likely to find a savings account that comes with an ATM or debit card. But you can transfer cash to a checking account at the same bank, as I do, or transfer it to an account at another bank from which you can then withdraw cash.
2. Deposit cash
On the other hand, if you frequently receive cash payments (perhaps you’re a small business owner or earn tips), you may have difficulty depositing them into an online bank account if your bank doesn’t have ATMs that accept cash deposits. Even in this case there are alternative solutions, but they involve additional steps.
I don’t remember the last time I had cash to deposit, but with my banking situation, if I wanted to deposit cash into my online bank accounts, I would have to deposit it at my brick-and-mortar bank. Then, I should transfer it to the online bank. A transfer this way is instant, thankfully, thanks to aa payments app which works with both banks.
This system might work for you if you deal with cash frequently and want the benefits of an online-only bank (more on that later). But it’s worth considering how convenient it will be to jump through extra hoops to get money into your account.
For many people the benefits may outweigh the disadvantages
I have found that these two pitfalls do not diminish my appreciation for mine online bank, and the benefits of keeping my money there far outweigh the cash issue. For example, my savings account currently earns a 4.25% APY. As of this writing, the average APY on savings accounts is just 0.43%, so earning nearly 10x is fantastic. Some of the rumors about The Ascent’s best savings accounts list earns even more. Online banks can pay higher APYs because they have fewer overhead costs, meaning there are no physical buildings to maintain.
And I feel very comfortable doing my banking through a website and a banking application, which is another area where online banks shine. Finally, online banks often charge far fewer fees on their accounts (and in some cases, no fees at all). All these benefits are certainly reason enough to consider online banks – I highly recommend them.
These savings accounts are FDIC insured and could earn you 12x your bank
Many people miss out on guaranteed returns as their money languishes in a large bank savings account with next to no earnings. Our choices of the best online savings accounts it can earn you 12 times the national average savings account rate. Click here to discover the best-in-class picks that earned a spot on our list of the best savings accounts for 2023.
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