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The pros and cons of online banks


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The pros and cons of online banks

If you love your local bank but want loans with better terms or more interest on your savings, you may want to consider an online bank. Many online banks offer interest rates that are 20 times the national average on their savings accounts and CD products, and many come with no fees at all. Online banks intentionally make it easy to transfer money into and out of their accounts, and some come with mobile apps that make mobile banking a breeze.

Take the CIT Bank Savings Builder account, for example. This high-yield savings account lets you earn 2.45 percent APY with a minimum balance of $25,000 or a monthly transfer of at least $100 — and all with no fees.

But high-yield savings accounts aren’t the only area where online banks shine. When it comes to loans, an array of online lenders ranging from Marcus by Goldman Sachs to Earnest offer personal loans with incredibly low rates and no origination fees or hidden fees.

Of course, there are downsides to online banks as well, including the fact that many don’t have any physical branches to speak of. Customer service is typically available over the phone or via chat or email, but the experience will be a lot less personal overall.

Online banks also require some patience. If you want to make a deposit via your bank’s mobile app, for example, you may have to wait a few days for the transaction to post. Wire transfers and ACH transfers can also take time, which can be inconvenient if you need your money in a hurry.

As a final downside, many online banks don’t come with a broad range of ATMs in their network. For that reason, you may wind up paying higher ATM fees than you would if you used a traditional brick-and-mortar bank for all your banking needs.

Here’s a breakdown of pros and cons:

Pros of online banks:

  • Earn more interest on your savings
  • Potential for lower fees or no fees
  • Convenience of online banking

Cons of online banks:

  • Potential for higher ATM fees
  • Not ideal for those who don’t use the internet
  • Online transactions can take time to process

bankrate.com

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