Making the switch to an Internet/Online only bank

I did this a few years back as the interest rates, among other features, that were offered were very attractive to me. I also got tired of fees by the "big banks" and used to work for a big bank and did not like the way they treated their employees. I will not name which bank I worked for but I can say they failed and were bought up.

Reasons to use an online only bank versus a traditional bank:

  • Free checking account with interest
  • Generally better rates on savings accounts and CD's
  • No checkbook -- if you can't have one for the account then they cannot be stolen
  • Less overhead means less expenses and the ability to continue to offer better rates
  • No paper statements to be lost/stolen (also helps the environment
  • No need for envelopes and stamps. Use online bill pay. This saves money and paper too!
  • Ability to send money electronically to anyone at any bank
  • Ability to have checks mailed from you to people or businesses (no bouncing as the money must be in the account!)
Drawbacks of online banks:
  • Check deposits must be mailed in
  • You cannot deposit cash to these accounts
  • Call center customer service versus live person
  • Only useful if your employer offers direct deposit
Here is how I combat the drawbacks:
  • I have a free checking account at a local bank that I deposit checks and cash too then transfer it online to the online bank
  • I rarely need to interact with a human so the customer service aspect is no big deal to me. I would rather go online, take care of my business, and move on. I don't want to spend the time or gas to go to a bank anyway!
  • I do have direct deposit at my job but if I did not I would just use the deposit and transfer method listed above
Other thoughts:
  • You can use online banks to chase the best interest rates. Very few have minimums or fees. The only way they can compete is by adjusting rates!
  • I use a rewards credit card for everything and pay off the balance each month. This requires discipline but the money sits in the account and earns interest until the due date!
I will agree that online banks are not for everyone. Some people feel that they need checks but that is no longer the case. With online bill pay, the ability to so anyone a check or even an electronic deposit, and debit cards being widely accepted: checks are going the way of dodo bird. They present risk for identity theft and account breaching that can be avoided now.

For those looking for a recommendation on a particular online bank my answer is two fold. I use ING Direct for checking. I like their site and system and I am used to it. I also love the ability to send people money through ACH and no need for paper checks or waiting. For savings I am currently with HSBC Direct as they offer the best rate for the amount I have in the account.

Try living without your checkbook for a month and see if you can do all of your business through bill pay or debit card or ATM. You will be surprised!