4 Myths About Online Banking That Could Be Costing You Money

Online banks offer a convenient way to access and manage your money anywhere you go. In many cases, they also provide better features, higher rates on deposit accounts, and lower fees compared to brick-and-mortar banks. These perks can save (or earn) you a significant amount of money in the long term.

However, many people may still hesitate to open an account with an online-only bank. Fortunately, some of their concerns may be based on myths about how online banking works. Here are some common myths about online banks and the truth behind them.

Key Takeaways

• Online banks typically offer the same insurance coverage as traditional banks. 
• Interest rates on deposit accounts can be much higher at online banks due to lower overhead costs.
• While some customer service capabilities differ, most people don’t use bank branches, and you can generally speak to a human at an online bank.
• Check deposits can be perfectly easy, though cash deposits may be a bit trickier.

Myth 1: Online Banks Aren’t Safe

Online-only banks and credit unions are relatively new to the banking industry, but that doesn’t mean your money isn’t safe. They typically come with the same insurance coverage that you’d get from a traditional bank or credit union—offered by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA)—in the event that the institution fails.

Make sure your bank or credit union is a member of the FDIC or NCUA. Then, even if your bank closes its doors, your money will be covered up to $250,000. 

Warning

You should exercise caution with nonbank fintech companies that offer custodial banking services in partnership with FDIC-insured banks. While your funds are insured if the partner bank fails, that’s not necessarily true if the fintech company goes under. To avoid this, ensure that you open accounts directly with a bank or credit union.

Myth 2: Rates at Online Banks Are Too Good to Be True

Online banks tend to offer higher interest rates on savings accounts and certificates of deposit (CDs) compared to traditional banks because they have lower overhead costs—largely due to the fact that they don’t have a physical branch network to maintain. 

In some cases these may be promotional rates to drum up business, but you’ll often find great standard rates from online banks. Long-established traditional banks may not be as concerned with attracting more customers with high rates.

Myth 3: Online Banks Have Limited Customer Service Options

You may be worried about customer service options with an online bank, especially when a local bank or credit union has a branch you can visit anytime you have an issue.

But many online banks now offer 24/7 customer service by phone, as well as a live chat feature that makes it easy to get help instantly and with little hassle. It’s not quite the same as speaking to someone in person, but—depending on the bank—you shouldn’t have much trouble getting help with problems.

Consider this: Only 8% of U.S. consumers chose physical branches as their top option for managing their bank account, according to a recent survey by the American Bankers Association. The most popular option, with 55% of the vote, was banking apps on phones and other mobile devices. 96% of respondents thought highly of their bank’s digital experience.

Myth 4: Depositing Funds Is a Hassle

Online-only banks typically offer direct deposit and mobile check deposits, making it easy to receive your paychecks and other important payments. Some also allow you to deposit cash via an ATM or with certain retailers—though a fee may be involved. Others do not allow you to deposit physical cash, which could be a problem for some people.

If you want to work with an online bank but need an easy way to deposit cash, you can maintain an account with a traditional bank or credit union and transfer the funds to your online bank account.

Wondering where to stash your savings? See our daily rankings of the best high-yield savings account rates and the best CD rates, which often feature many online banks and credit unions.