09 Mar Sick of fees? Consider an online bank

Q. I’m thinking about leaving my local bank and trying one online. I almost never go to a branch anymore, and the fees at my current bank are awful. What do you think?
— Jumping ship

A. Online banks, also known as direct banks, can offer lots of advantages.

There are drawbacks, too.

Let’s start with the positives.

Banks that don’t have the overhead needed to operate brick-and-mortar locations can offer consumers preferential rates because their expenses are lower, said Taylor Thomas, a certified financial planner with Round Table Wealth Management in Westfield.

They can afford to offer higher interest rates on checking and savings accounts, and lower rates on mortgages and other loans, Thomas said. They may also offer penalty-free and high-yield Certificates of Deposit (CDs).

“It is always wise to compare several banks’ interest and loan rates before selecting one to do business with,” Thomas said.

He said online banks will typically offer additional services, though some may come at an additional fee via their website. These services may include budgeting, financial planning, investment analysis, loan calculators, online bill paying, online tax forms and online tax preparation.

Online banking can be very convenient.

“Many online banks offer a smart phone application which can be downloaded and used from anywhere you are able to access a data signal,” Thomas said. “These accounts are easy to set up, monitor and manage. They are also environmentally friendly as they are usually paper-free and don’t require vehicle transportation.”

But there are still cons.

Thomas said nothing can replace the relationship that is built through face-to-face meetings.

“A traditional bank offers the customer the ability to build a personal relationship and this is exactly what you’ll want to have when you require assistance with a unique banking issue, like help with special loan product or an overdraft on your account,” Thomas said.

There may also be times when you need to make a complex transaction with extra forms, and help from an in-the-flesh banking employee may be hard to beat, Thomas said.

If you regularly complete international transactions, you may want to reconsider using an online bank, and some local banks offer insurance and brokerage services that may not be available at an online bank.

Then there’s the cash issue.

“Most online banks do not have ATMs, so you will likely be forced to pay the withdrawal fees to access your cash,” Thomas said. “Lastly, if you regularly deposit cash via a local bank branch, you should think twice before converting to an online bank as this will not be feasible.”

So an online bank may be a good way to access more competitive interest or loan rates, but these benefits should also be weighed with your need for service, complicated transactions and a personal relationship, Thomas said.

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This story was first posted in March 2016.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.