In today’s day and age, there are several options available when it comes to choosing your bank. Traditional banks seem to be on every street corner, but did you know some bank brands are exclusively online? What are some of the advantages and disadvantages of digital banking vs. traditional banking? Let’s take a look.
Advantages of Digital Banks
While many banks offer online services such as making transfers and depositing checks online, maybe even an app for your smartphone, that is not the same as digital banking. These banks do not have any physical branches. There are several reasons why you might want to explore digital banking.
Here are a few:
- Lower fees and account minimum balances
- Higher interest rates on deposit accounts
- Participation in the popular Zelle® payment network
- Expanded offerings including loans and retirement accounts
- Rebate ATM fees because they do not own or operate any of their own
- New brands focused on populations underserved by traditional banks
Digital banks, such as Discover, Capital One, Axos, Discover Bank and Ally, do not require a minimum deposit in order to open a checking or deposit account. These low minimum balance requirements make digital accounts great options for special or limited purpose accounts. Recall the Christmas Club savings account from years ago? Have child(ren) who need a simple, no-cost savings account? Consider a digital bank account for these situations. Many digital banks also do not charge a monthly service fee as traditional banks do. If you require multiple, low balance accounts digital brands are a viable alternative.
Interest rates are often higher as well. For some banks, interest in a checking account could be between 0.10% – 0.25% interest, as compared to the rate of 0.01% of traditional banks. If you keep substantial cash balances, a digital bank account to stash away funds for expenditures like quarterly taxes or annual property tax payments.
You can also open loans through a digital bank, such as a personal loan, a car loan, or even a mortgage. Convenience is also key with a digital bank, as you can do your banking well beyond traditional banking hours and open a new account in the middle of the night if you so desire.
When digital banks first opened their proverbial doors, their services were limited to checking and savings accounts only. Nowadays, they’ve grown to be true competitors with their brick and mortar counterparts by offering things such as car loans, mortgages, certificates of deposit (CD’s), and sometimes even business banking. Investment accounts such as individual retirement accounts (IRAs) and self-directed investment accounts are quickly becoming new services.
Without physical locations, branches, or even ATM’s, digital banks are more likely to rebate incidental fees for accessing your cash. ATM locations within other businesses such as grocery stores, gas stations or drugstores saves you a trip by completing two activities in one stop.
Mobile connectivity created more opportunities for OneUnitedBank and DayLight which foster social change, inclusivity, and financial education opportunities.
Disadvantages of Digital Banking
Even though digital banking seems like a promising new frontier, there are some disadvantages to go along with the convenience. Some bank services, such as a notary, a safe deposit box, and cash deposits (or withdrawals) can only be done in person at a traditional bank.
Here are a few:
- Depositing cash is limited
- Difficulty taking large cash withdrawals
- No notary
- No safe deposit box options
- No in-person representative
Depositing checks can easily be done through a digital bank app, but if you have to deposit cash, you need to utilize one of these strategies. First, ensure your digital bank participates in an ATM network with locations convenient to you. Then make your cash deposit using one of those participating machines. Alternatively, buy a cashier’s check with your cash, and then deposit it using the app. Aware of this shortcoming, Capital One introduced a solution allowing depositing cash at CVS locations. Axos has a similar solution as well. On the flip side, taking out large cash withdrawals is easier said than done, as most ATMs have a daily limit that might be well below the amount you had in mind.
Even though you can deposit checks written by others, digital banks frequently frown upon check-writing services. They are able to issue a paper checkbook, but many do not wish to do so. As a digital bank, their outlook is to do all transactions digitally. This makes it severely inconvenient if you happen to regularly write checks.
Do you need a safe deposit box? You’ll need a traditional bank for that. If you need anything notarized, digital banks cannot help you here either. So be prepared to find alternative providers and pay for the service offered for free by a traditional bank.
Should you find yourself frustrated with online or telephone banking representatives’ handling of a matter, there is little alternative with a digital brand. Being prepared to conduct all of your communications via telephone, online chat, or even postal mail.
Take a look at your unique needs and preferences then determine whether or not a digital bank account is right for you. When you choose a digital brand, bank or credit union, look for options that are FDIC or NCUA insured to protect your money.
Finding your banking utopia will look different for you than it will for your neighbor, but that’s the beauty of customizing your digital options and what works for you.
At Organized Instincts, our seasoned team of daily money managers can help you select and set up a digital bank account at the brand of your choosing. Schedule a free consultation today to learn how we can guide you through the process.