If you’ve never used an online bank, you may wonder what the experience is like. Why are they popular, and what makes them different from the brick-and-mortar bank that you currently use? There are plenty of similarities, but a few key differences make online banks attractive for web-savvy consumers.
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Ultimately, online bank accounts are about taking care of things yourself, without needing to visit a branch. If you need help, most banks offer customer service online (via chat or email) and through toll-free phone lines.
Also, you might actually be happy to avoid bank branches. When you use an online bank, you don’t have to suffer through sales pitches that you often find at bank branches – you can simply complete your transaction and move on with your day.
Online banks are known for paying higher interest rates on savings accounts and certificates of deposit (CDs). Online banks can save all the costs associated with running a physical location and use the savings to provide better value to their customers in the form of lower, or no, overdraft fees, higher interest rates on savings accounts and no ATM fees.
If you’re looking for the absolute highest interest rate available, an online bank is probably where you’ll find it. Simply do a search for “best online savings account rates” and start shopping around.
Some people keep accounts open at multiple online banks and transfer money between accounts as rates change. This strategy may pay off, but make sure to pay attention to any “transfer” days during which your money is not in any account earning interest.
What’s the difference between an Online Savings Account and Money Market Account?
The main difference is the way you access your money. A money market account gives you more access because you can be issued a debit card and checks. The online banks I have seen are usually paying less on a money market for that reason.
An online savings account doesn’t usually include checks or a debit card. If you can get online transfers to your local checking account, you’re better off getting the online savings account that offers a little higher rate and just move money into your regular checking when you need money. Just be careful not to exceed the transaction limit each cycle.
Some people like walking into a bank, speaking with a teller and having the ability to easily deposit cash. You can do everything through online only banks that you can do through a bank teller. The difference is that traditional banks close every night and on weekends.
Online only banks are accessible 24-hours a day from any location you choose. All you need is an internet connection and a computer, tablet or smartphone. While you may never leave your bank entirely, you should consider moving your savings, rainy day fund or emergency fund to an online bank.