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Online Vs Bricks & Mortar Banks

By Ellie Murray

As a rule of thumb, a lot of us tend to stick with what we know — the banks and brands that we stay with year after year, even though we may grumble from time to time about the sort of deals they are offering. Online banking, at least to some degree, has become the norm for many simple bank transactions. And that’s not a bad thing – the easier it is for consumers to check their accounts, pay their bills and move money from one account to the other, the more likely they are to actually do these things and maintain a more organized financial life. However, it’s important to consider that just because online banking is a good addition to the world of consumer banking, doesn’t necessarily mean that direct internet banks are a substitute for their brick-and-mortar peers in all cases.

Benefits of Online Banks

High yield interest rates: The greatest benefit of using an online bank is generally the interest rate. The interest rates on their savings accounts are almost always higher since their overhead is lower. There are no branches to maintain, no tellers to pay for, no branch managers or janitorial staff. Without those added expenses, banks can pass the savings on to customers in the form of higher interest rates.

Superior online website interface: Since 99% of your interactions with an online bank will be through a website, online banks typically have very sophisticated websites with plenty of features and a very fast response time. Many brick and mortar banks that offer online capabilities often do so as an afterthought.

Opening an account is quick and easy: As a result of being entirely online, anything you need to do can be done online at any time. If you feel like opening a new CD on Sunday night, you can. You don’t have to wait for a branch to be open, you don’t have to drive to the branch, wait in line, and then fill out paperwork or meet with a banker.

Drawbacks of Online Banks

You can’t go to a branch:There is something comforting about being able to go somewhere and talk to someone face to face. With online banks, the relationship aspect of banking, which is most critical when dealing with loans, is gone. Some online banks offer loan services such as mortgages and car notes, but by and large, most people still trust brick and mortar banks for those types of services.

Transaction Issues: Sometimes a face-to-face meeting is required to complete complex transactions and address complicated problems. A traditional bank can host meetings and call in experts to solve a specific issue. In addition, international transactions may be more difficult (or impossible) with some direct banks.

If you regularly deposit cash, a traditional bank with a drive-through window may be more practical and efficient. Another potential drawback is that most direct banks do not have their own ATM machines. Unless an internet bank has a network alliance with another bank, you will be charged for your ATM use.

Security: Identity theft is a significant concern, but some online banks take this risk more seriously than others. Before opening an online account, thoroughly investigate the bank’s security policies and protections to ensure they meet your expectations.
If you choose an online bank backed by the FDIC, you’ll be covered for losses up to $250,000 just like any other bank customer. And, of course, remember to avoid doing any online banking on a public or shared WiFi connection, since that’s when your information can be most easily intercepted.

Customer service: If you like to deal with the people managing your money via email or over the phone, go digital. If you’d rather have someone to talk things through with face-to-face, stick with a regular bank. Nearly all banks also have call centres and online message centres as well. Online banks are rarely, if ever, “closed.” But if you’d rather use a traditional bank to complete your transactions or get questions answered in person, you’ll need to visit your bank during normal business hours and make sure it’s not a bank holiday.

Personal preference: Having a personal relationship with a banker can be a big benefit for people, especially those who like getting new products or services pitched to them or getting in-person financial advice. But keep in mind that banks have been closing physical branches left and right to cut costs, even installing ATMs that allow tellers to answer questions via web cam.

The Bottom Line

The rise of internet banks has increased the competition for your banking business. With both online and brick-and-mortar banks offer unique benefits and drawbacks, it may not be wise to do your banking exclusively with either option. While it’s not possible for everyone, the best play may be to split your banking between both in-store and online services and enjoy the conveniences and savings of internet banks while maintaining the customer service and personal relationships a physical branch can provide.

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