The internet has changed the way we do almost everything these days, from how we shop for household supplies to how we compare car insurance rates and auto loans.
The same can be said for how Americans choose to bank and borrow money. According to a study conducted by Morning Consult for the American Bankers Association, 4 in 10 Americans do their banking online and that number is growing all the time.
But what’s the appeal of online banking exactly? There are many reasons online banks have so many fans. If you’re thinking of banking online but wondering what the big deal is, here’s everything you need to know:
1. You don’t have to leave your couch
Gone are the days when you had to head to your local bank to open a checking or savings account. Online banks make it easy to open an account online, and you can even transfer money from another account to get your new account started. Information you’ll need to open an online checking or savings account includes your name, residential address, Social Security number, birthday and a bank account number you can use to make your initial deposit or transfer.
If you’ve set your sights on an online bank, getting started is a piece of cake. All you need to do is compare online checking and savings accounts in terms of their interest rates, features, and fees. Once you find a bank that suits your lifestyle and goals, you can apply online and open your new account in a matter of minutes.
Also note that many online banks provide the same type of loans you can find at a brick-and-mortar bank — home equity loans, personal loans, and auto loans, for example. If you need to borrow money for any reason, you can compare banks online and apply for a loan from the comfort of your home.
2. You will earn more interest over time
The most important reason to sign up for an online bank account is the interest you’ll earn. While most traditional banks offer an average yield of .01 percent, many online banks have savings accounts that offer 2.00 percent APY or more. For example, Marcus by Goldman Sachs lets you earn 2.25 percent APY on your savings with no fees and no minimum deposit or balance requirement. They also offer a one-year, high-yield CD that lets you earn 2.75 percent APY for 12 months.
While the difference between .01 percent APY and 2.25 percent APY may seem miniscule, this couldn’t be further from the truth. Consider this example:
Let’s say you have $5,000 saved and the ability to add $200 to your account every month. You stick with your savings account with a legacy bank and earn a measly .01 percent APY on your savings each year for five years. After five years, you would have $17,004.90, which doesn’t sound bad. However, this amount represents a total of $4.90 in earnings after accounting for your own deposits!
Now imagine you deposited your savings in a high-yield savings account that earned 2.25 percent APY with the same initial deposit and the same monthly contributions for five years. Once those 60 months were up, you would have $18,140.68 in your account with no extra work on your part. It doesn’t get any easier than that.
3. Some online banks pay higher rates for regular contributions
Some online banks will even offer higher returns if you contribute regularly or maintain a minimum amount on deposit. The CIT Bank Savings Builder account is a good example since it doles out 2.45 percent APY for customers who keep $25,000 in their account or deposit at least $100 per month. There are no fees on this savings account and you can transfer money in and out easily.
With the incentive of more interest each month you’re able to set aside $100 in this account, you may find it’s easier than ever to stay motivated and on track with your goals.
4. Signup bonuses can entice you to save more
Some online bank accounts will even pay you to sign up — well, in a way. With a bank account signup bonus, you can normally earn $150 to $400 just for opening a checking or savings account and meeting a minimum deposit requirement or setting up automatic direct deposit.
Keep in mind, however, that bank accounts that offer signup bonuses rarely offer the most interest on your deposits. You can use them to earn a big bonus, but they may not work best over the long run.
5. Mobile and online banking makes managing your money a breeze
Imagine moving money from your checking and savings accounts to your high-yield emergency fund account without ever leaving your home. That’s the reality these days thanks to online and mobile banking features like mobile deposit and ACH transfers. Most reputable online banks don’t even charge any fees for transfers each month.
Banks with mobile apps also make staying in touch with your money the easiest thing ever. Depending on your bank, you may gain access to features like mobile check deposit, banking and deposit alerts, savings and debt repayment tools, automatic payments and ATM locators. The most savvy mobile banks also let you track your spending on your smartphone, or the rewards you earn when you use a cash-back or rewards credit card that’s attached to your account.
The bottom line
If you’re on the fence and tempted to try an online bank, there’s no reason not to give one a shot. Reputable online banks are FDIC-insured just as traditional banks are, and the top online banks have no fees or minimum deposit requirements.
If you’re earning .01 percent on your savings and your current account is light on features and perks, you’re not doing yourself any favors. In fact, you could be costing yourself thousands of dollars.
There’s nothing “easy” about letting free money pass you by, so stop.