Most young people I know today already know and love the internet banking model, but it isn’t just “hip” in terms of a fad, there are actually a lot of solid reasons for going with internet banking. First and foremost, much like the online shopping model I have come to know and love, online banks have much better rates on certain financial products and generally have substantially lower fees. The reason behind this structural difference is pretty straight forward – traditional banks have “brick and mortar” costs that online banks simply don’t have. If you don’t have to pay rent, or land taxes plus capital costs to buy a building (most locations are found in pretty prime real estate areas), or utilities, you are going to save some cash. In addition to this, think about all the salaries that can be saved in terms of maintenance, and tellers. With online banks, one could imagine that far less employees are needed, and their time could be used much more efficiently (ever wander into a bank at 2 in the afternoon on a Tuesday? Online banks don’t have to pay for that inefficiency).
“…and Save Your Money”
Banks like Ally and ING (now owned by Scotia Bank) take these savings and pass them on to their customers in various ways. The classic method to reward their customers is to provide great rates on high interest savings accounts and GICs (as well as their negligible fees). ING is now making a big push to gain market share in the home mortgage department, and I definitely intend to get a quote from them when I compare rates next spring. While I personally don’t use my online banking account much yet (I went with RBC for the time being for a variety of reasons) I do intend to use them more and more as time goes on. Both ING and Ally have pretty decent records as far as customer service goes. While you can always find people with some negative experiences on investor forums, both online banks are highly recommend within the personal finance world.
Time and Efficiency – Aren’t What They Used To Be
The biggest impetus for me to go with online banks is the time they save and efficiency they bring in terms of choosing your own hours. Right now with RBC I already do 98% of my banking online anyway and I love the fact that I am not a slave to “banker’s hours”. The value of being able to get stuff done from the comfort of my own home on a Sunday evening, or whenever else I feel like it is a big time consideration. I also like the convenience of being to check your balance whenever you feel like it. I am a technological idiot and even I can use an app to check my accounts out. The really great part is it takes like four seconds. In the “olden days” of yesteryear you wouldn’t even have started your car to drive to the bank in the time it takes to check things now. While online banking obviously isn’t exclusive to online banks, I believe they will continue to have some of the best interfaces available, and obviously concentrate on that model since it is their entire business instead of just a segment. I’ve written about why online banking in general is great before, but it is worth reiterating the value of automating your finances.
“Hand In My Pocket…”
Perhaps the best argument in favour of online banks is their advantageous fee structures. When you think about, the business model current banks have is pretty phenomenal. They claim they make money by taking in deposits and lending that money out at slightly higher rates. That spread is supposed to be the banks profit. Now consider in addition to this, the crazy monthly fees many brick-and-mortar banks hit you with just to have access to your own money or to hold your money in specific accounts. When you look at it after taking a step back it makes you want to applaud the fact that banks are able to figure out all these ways to make money right underneath our noses. It also explains why so many investment gurus say, “If you can’t beat the banks, own them instead.” Anyone want to be that with a business structure like that, those dudes aren’t going to continue to make piles of money (unless they blow like $6 billion in the derivatives market, but Jaime Dimon assures us that won’t happen again).
Check out the different online bank options for yourself and compare their fee structures to your current bank. I haven’t had much use for a high interest savings account yet, but as my finances grow this will obviously change as well! Do any of our readers use an online bank exclusively, or at least primarily? What was the key to getting you to change over?