In 1995, grunge rock was still somewhat popular, and the Internet was mostly seen as a place for nerds to express their love of Star Trek. At that time, I had a friend who was working for Security First Network Bank in Atlanta – the first Internet-only bank to ever be created. She convinced me to try it then and I’ve never gone back.
How do you choose your bank? A few years ago, it might’ve been smart to find the bank with the most branches. If you’re still making regular in-person visits to a bank, you should consider Internet-only banks as a cost-effective alternative to large (and even small) institutions that still operate brick-and-mortar buildings.
As an early adopter of Internet-only banking, I’ve spent 15 years learning the benefits – and drawbacks – of this business model…
- No more waiting for a teller. Most of my money these days comes in the form of direct deposits, but when I need to deposit a check, I mail it in using a prepaid deposit envelope my Internet bank provides me. If it’s urgent, or I’m depositing or withdrawing cash, I’ll use an ATM – Internet banks still issue ATM cards that can be used at other banks. In fact, many of these banks, like the one I use, offer ATM cards with no surcharges. Some will even refund the ATM fees incurred when you use your card at other banks.
- Exceptionally low fees. Since Internet banks have very low personnel and overhead costs, they can offer low fees and competitive interest rates. For example, First Internet Bank of Indiana offers free checking with no minimum balance, while accounts that maintain a $500 minimum balance earn 0.7-percent interest. With their interest checking accounts, ATM use is free, and customers are reimbursed for up to $6 a month for other banks’ ATM usage fees.
- 24-hour customer service. Nearly all banks have a website where customers check their balance, pay bills, and perform other functions. Some even have 24-hour customer service as well. Nevertheless, I find that customers of Internet-only banks are more reliant on remote support, so the banks step up their game to compete with their retail competitors. In addition to telephone support, my bank offers an online chat support – great for times when I’m unable to make a phone call or when I don’t want to announce my business to everyone within earshot of me.
- More competition. Since internet banks are by definition national, that means more competition, which should lead to higher rates on savings and lower fees on services. That being said, also keep in mind that it’s a good idea to patronize local businesses – including local banks – that provide jobs and support your community in other ways.
- More efficiency. Getting out of the habit of visiting the bank pays off in many ways. You spend less time and gas driving to a branch, and you’re more likely get in the habit of paying bills online.
- Coin and cash transactions can be more difficult. If you operate a cash business, you’ll miss the ability to deposit or withdraw large sums of cash. Remember, ATM withdrawals have daily limits – typically $400 to $600 depending on the location – and they don’t accept coins.
- Cashier’s checks are expensive to order. Local banks have always been able to provide me with a cashier’s check when I need to buy a car or close a mortgage. Obtaining a bank check from an Internet-only bank is possible, but it will probably charge you a fee. For example, First Internet Bank of Indiana charges a $5 fee for a cashier’s check, along with another $30 for overnight delivery, although many traditional banks will perform this service free.
- Other banking services aren’t offered. There are times when you need a local bank. You may need to make change or have a document notarized, or maybe you just enjoy having a personal banker. Sometimes there’s just no substitute for a live human being behind a desk.
Many of the services we use that were once exclusively local can now be accessed through the Internet. Internet-only banks now compete strongly against those with retail branches, and it remains to be seen how much of the market each business model will ultimately retain.