Large Banks vs. Online Banks: Big Banks vs. Online Banks: Is one better than the other? For many consumers, the best option involves direct banks vs. online banks. Direct banks generally handle their own money…they call it ‘customer cash,’ and they provide an unparalleled customer service experience. That being said, there are pros and cons for both direct and online-only banks.
Direct banks tend to offer lower fees, sometimes up to 10%, than internet banks do. Direct banks also have lower operating costs, which translates into lower fees. But perhaps the biggest factor in determining which banking option is best for you is how you plan on paying your bills…
Direct banks offer several checking accounts to choose from. Some of them are better than others. While the best checking account is free, some require monthly deposits that are not paid back until you have accumulated enough money to open a savings account. And even then, there is no guarantee you will be able to earn interest. Some cards only offer higher interest rates when you pay your balance on time, while others only offer higher interest if you pay your balance off by a certain date.
Internet banks typically offer more checking and savings accounts, as well as lower interest rates. But they do not provide a credit union account. Internet banks typically only work with financial institutions that use their credit unions, which means if you want to use your union as a savings account, you may not be eligible.
Most of the online banks allow customers to link their checking and savings accounts to their online savings accounts. However, some restrictions apply. Some online banks do not allow automatic deposits from non-bank sources. Certain transactions may be restricted, such as automatic transfers between accounts, automatic deposits of checks, or purchases above a pre-determined amount. It’s, too, are subject to rules that vary by bank.
Internet-only banks generally charge very low banking fees. A few include ATM fees. These fees are usually much less than what other banks charge. The fees also do not apply to transactions made through ATMs. Fees for online transactions are not tax deductible. Many people mistakenly think that the tax penalties will make up the difference, but this is not the case.
Many of the online-only banks typically provide debit card accounts as well, although they can also provide online-only checking accounts as well. A few offer checking accounts and savings accounts, with paper checks being replaced by electronic transfers. Some of the banks offer overdraft protection in case the balance goes below a predetermined amount. The fees for these services are usually very nominal. They are designed to attract customers, who tend to be younger and more affluent.
Most of the banks provide online checking accounts for free, but some do require activation fees. Activation fees are non-refundable. They may require activation by phone or email. Other banks may offer credit cards, while others offer debit cards with preset spending limits. They also maintain a website where you can monitor your account.
In contrast, internet banks are designed for the average person who doesn’t have a whole lot of money, or who doesn’t want to spend a lot of time on maintaining an account. Online banking makes payments easier to give and less likely to be lost or stolen. Most online banks accept credit cards from major retailers and select merchants.
Because of their lower fees and higher transaction volume, internet banks often charge more for their services. They are not known for providing customer service, however. Another disadvantage is that they don’t keep records of your transactions. Internet banks use electronic transfer services and checks to obtain the information about your account.
Online banks may charge higher fees for transactions made outside their establishment. Certain transactions, such as checks, must be made with a check type of financial institution or with an electronic check processing service through which the transaction is completed. Internet-based banks may have lower interest rates than their brick-and-mortar counterparts because there are fewer transactions to manage and fewer checks to print out. Many transactions are automated so they don’t involve much interaction between the customer and the bank. Internet banks usually do not have a dedicated customer service department, but many have customer support through their websites.