We like our local bank tellers—sometimes they even offer us a soda when we walk through the door—but we have to face a plain fact: Many online-only, branchless banks offer better interest rates on CDs and savings accounts. You’ve saved money, and you rightfully expect to be rewarded. But rainy-day repositories are experiencing record-low yields. For example, Bankrate.com shows that the average yield on a five-year bank CD is 2.8%, compared with 3.9% two years ago.
You’ve started receiving come-ons in the mail from ING, Ally Bank and other online banks, offering twice your local bank’s interest on saving accounts. Are branchless banks a scam? Are they worth the additional hassle and lack of personal support? What should you do?
Branchless Banks are Good ... Sort of
We recommend online-only banks for people looking to maximize their interest, but there are some drawbacks we should note. Many of the higher-yielding accounts require minimum balances, and sometimes a separate checking account at the same bank (which can come with fees of its own). Other online banking Website such as PayPal are notorious for taking a long time to credit funds to your account, sometimes as much as three to five days. Other branchless banks require you to pay A.T.M. fees for other banks and then wait for reimbursement, which can be a hindrance to consumers who would rather not pay out of pocket.
The Most Important Feature is Fit
If you know that you'll need fast cash from time to time, then we recommend keeping some money in a local bank account for quick access—and for the timely crediting of funds to you account. Think about your banking priorities: Are you most concerned with personalized service? Or are you really all about crunching the numbers and getting the best deal? Online-only banks do have customer call centers that will answer your questions and concerns. All the same, some customers feel more comfortable being advised by a real person, face-to-face. Before you begin your search, think about what you're looking for in a bank.
Then Investigate Your Options
Read Websites and blogs for extra insight. MoneyRates monitors and lists high-yielding rates at banks; the exact percentages change frequently. Find out how long it will take for your funds to become available after transfer. Research whether the high interest rates are simply a tease, on-again/off-again, or long-term. Are there fees associated with the account? Are there any daily or long-term minimum balances, or other restrictions such as limits on the number of withdrawals or transactions?
We advise testing the waters with a small transfer when you are satisfied that you've found your best banking match. Then, sit back and let your money make itself.