Anyone who is accustomed to being able to walk into the local bank branch, access accounts through a teller, and discuss banking options with an account manager on-site might still have reservations about moving money to an online-only bank. The benefits are big. Usually, online-only banks offer higher interest rates on savings and certificate of deposit accounts, and that makes the change worthwhile for most customers.
It’s common to hesitate. A bank with no physical branches seems more ethereal, as if it’s not a thing, but an idea of a thing. Does a bank you can’t visit exist in the real world? Are the customers identified by hacker-like handles and does the bank operate in a fictional world like Second Life? Will the company just disappear one day, taking advantage of the fact that closing down wouldn’t entail shuttering storefronts? Many customers simply have serious doubts about the legitimacy of a company that can’t be found by driving any number of miles.
Deal of the Day: Earn 1.00% APY on an FDIC-insured savings account at Ally Bank.
Today, Jesus T. wrote into Consumerism Commentary with his concern:
I would really like to transfer my savings from Chase Bank to Ally Bank. At Chase I am not earning any interest. I’m just very wary because Ally is an online bank only. I don’t want to lose the money I have worked so hard to save. I was thining of opening a CD account with Ally. Any suggestions to put my mind at ease about to Ally Bank?
Online banks, as long as you’re dealing with a reputable institution, are just as safe as traditional brick-and-mortar banks. Here are some points about Ally Bank and online banking in general that could help put your mind at ease.
- Ally is currently one of the strongest online banks right now. The announcement may have been more of a marketing move than anything else, but Ally is a potential buyer for ING Direct. For more on this bank, see my Ally Bank review.
- Your deposits at Ally Bank, just like deposits at any other legitimate bank in the United States, are protected by FDIC insurance. Even if the bank does have a problem in the future and is acquired or goes out of business, you will be able to access your money. The likelihood of this happening is low. If you’re ever unsure about whether a bank is covered by FDIC, search for them on Bank Find, the FDIC’s database interface.
- Online banks without local branches have lower overhead costs, so they are able to pass the savings onto the customer in the form of higher interest rates.
- Banks that sprung up operating online only were so successful with customers that brick-and-mortar banks copied the business plan. For example, Emigrant Bank, a tiny bank in New York, gathered a wider audience when the company created Emigrant Direct and was a head-to-head competitor with ING Direct for several years.
- Banking online with a legitimate institution is secure. Your information is encrypted when it is sent to and from a bank.
Every time you get in your car and drive to the bank, in some respect, you are putting your life at risk. When banking online, all you have to worry about is lightning.
Updated September 24, 2015 and originally published May 18, 2011. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.