Online banks

What are online banks?

Now that you are reading this article, you might be wondering what is an online bank? Is it different from the banks that we see in our day to day life? Well the answer is yes. Online banks are those who doesn't have a physical presence. Yes you are reading it right; those banks doesn't have a physical presence. As we are entering an age of virtual presence; banks are moving in the similar direction. 

When you signup for these banks; you don't have to visit them physically. All the processes and paperwork are done online. You send them required documents via email and they setup an account for you. You can visit individual banks websites and signup for the account.

                                                    

                                                                Image by Tumisu from Pixabay 

Advantages?

You might be wondering if you have access to a physical bank then why you will go to an online bank. Well think again. The one main reason of going to an online bank is "Getting good interest rates". 

You might be depositing money in your savings or checking account and you might be getting an interest of .15 to .3 % on your balances(if you are lucky). The interest is earned on a yearly basis. Hence, it is called as APR. But you do earn interest every month on a prorated basis. 

Moreover, they are compounded daily

In case of online banks; the interest rate is higher. They range from .8 to 1.2%. Although online banks are slashing their rates in 2020. However they are still higher than the physical banks. If you are interested here is the list of online banks. 

1. Barclays
2. Amex  
3. Discover
4. Ally
5. Capital One 360

                                                                    Image by mohamed Hassan from Pixabay 

Disadvantages:

1. It might be difficult to withdraw money in case of online accounts. You can have an ATM card, but every time you use it; you will be charged some amount. However, most banks reimburse those fees but you are charged the amount initially :) 
2. There is a limit on the number of withdrawals you can have each month. Each bank is different, some might have the limit and some might not. So check this fact before signing up. If you withdraw money regularly then this you want to open an account with some bank that doesn't charge on higher number of withdrawals. 
3. There will be no ATMs of your online bank so you will be using your card at other banks ATM.

Conclusion:

The interest rates in online banks are slightly higher than the traditional brick and mortar banks. You can surely get some good interest on your deposits at the end of the year. If you are a spender then online account can help you to watch your spendings. 

Finally please read carefully all the required documents before opening an online bank account. Confirm if it is legit bank and don't fall into the trap of non-existing banks. When in doubt; it is always advisable to go with the reputable banks. However, you can confirm the authenticity of other banks by researching them online and calling/emailing them. Also, you can start with a small amount; once you are comfortable with a big amount then you can go ahead with it. 

Please note; I am not affiliated to the banks listed in this article. When I researched these are the top brands which happen to give out some good interest rate. Once again read the documentation carefully before signing up for an account. Hope you found this information useful. I will post my next article soon. Till then happy saving!