Key Considerations When Transitioning from a Traditional Bank to an Online Bank
Traditional banks offer many benefits, but they aren’t always the most accessible or convenient option. Sometimes, they also come with higher fees or lower annual percentage yields (APYs) compared to digital banks.
However, not all online banks are the same. Before switching from a traditional bank to an online one, it’s crucial to ensure the online bank meets all your needs. This way, you can be confident that your money is safe.
Here are some key features to consider when evaluating online banks:
**FDIC Insurance**
Traditional banks and credit unions are typically FDIC-insured up to a certain amount, which means your money is protected against bank failures or other issues beyond your control. Many online banks also offer FDIC insurance, but it’s important to verify this. Look for the FDIC logo on the bank’s website or use the FDIC’s BankFind Suite tool to confirm the bank’s insurance status.
**Standard Fees**
Online banks, like traditional ones, may charge fees such as overdraft fees, monthly maintenance fees, and foreign transaction fees. Some online banks waive these fees or have fewer of them to attract customers, thanks to their lower overhead costs. However, it’s essential to check for these fees before making the switch. Many people are surprised by unexpected bank fees, which can add up quickly. On average, Americans pay $133 in ATM fees and $300 in bank account fees annually, totaling over $400 per person. Look for a bank with a competitive fee structure, including low or no monthly maintenance fees and lenient overdraft fees.
**Restrictions and Penalties**
Online banks may have specific rules or restrictions to avoid certain fees. These can include minimum balance requirements, transaction limits, or direct deposit requirements. It’s important to review the bank’s terms and conditions to understand all potential fees and how to avoid them. Once you have an account, monitor your activity to ensure you’re not incurring unexpected charges.
**Rates**
Many banks now offer interest-bearing checking accounts. While the interest rate on these accounts is usually lower than that of savings accounts, choosing an account with a higher APY can help your money grow faster.
By considering these factors, you can make an informed decision when choosing an online bank that best suits your needs.