More and more people are going for digital banks instead of traditional ones. This is happening because digital banks revolutionized an industry that hasn’t changed much for a long time. By doing that, digital banks brought innovation, better deals for clients, and easier access. Thus, it is only normal that once you open an account in a digital bank, it becomes hard to go back to traditional banks. That is why, in this article, you will learn everything there is about digital banks and why you should consider opening an account in one – if you haven’t already. On top of that, it will list the best digital banks in 2021.
Digital banks - also known as online banks - offer desktop and mobile banking services without physical branches. They are basically the same as a traditional bank but only exist online. Because digital banks don't have to pay for the upkeep of physical locations, they can generally offer higher interest rates if compared to regular banks.
To better use online banks, customers need to be comfortable with technology. However, digital banks usually offer comprehensive customer support alternatives to assist clients with eventual difficulties.
Nowadays, most traditional banks offer some sort of online access. With this access, you might be able to do money transfers, bill payments, and other services. These online services offered by traditional banks are called online banking. It is very nice that regular banks are trying to evolve with the industry. However, online banking is not the same thing as online banks. Having online access doesn’t make it an online bank.
While traditional banks often offer online access, they still have branches – and all the costs that come with them. Online banks exist exclusively online, without any physical locations in which you can talk in person with an employee. Instead, on online banks, you get your customer service in online chats, calls, and e-mails. All the services of digital banks are offered through their app and/or website.
As a rule, digital banks will have significantly less time in the business than their conventional counterparts. On the other hand, they more often than not offer greater interest rates on checking and savings accounts due to their lower overhead.
Yes. You need to take care of your digital bank information as much as you take care of your conventional bank information. Online banks, just like traditional ones, are usually affiliated with the Federal Deposit Insurance Corp. seal. This means they are FDIC insured up to $250,000. The National Credit Union Administration performs a similar duty to the Federal Deposit Insurance Corporation (FDIC) when it comes to online credit union accounts.
Many people are scared of having their digital bank accounts hacked. That risk exists to everything with an online presence, even though it is extremely rare to happen in institutions as protected as banks. An online bank has the same danger of being hacked as a traditional bank with online banking. So that is definitely not a reason to back out from using online banks.
If you are still insecure about using digital banks, there are some tips that can make your experience even safer:
A password that contains upper- and lower-case characters, symbols, and numbers in a random order is far more difficult to crack. Just make sure you remember it; one technique is to useacronyms like "I can sleep every night" and use the initial letters "Icsen" somewhere within yourpassword. If the password is a number, make sure you don’t use obvious combinations such as part of your phone number, birth date, or a loved one's birthday. For further security, you can use a password manager and generate a complex password with numbers, letters, caps, characters etc.
Biometric authentication is available in several mobile banking apps. This allows you to verify your identity by utilizing a distinguishing physical attribute. This attribute can be your voice, fingerprint (a common way on mobile devices), or facial/retina scan. While not yet widely available across all banks, biometric authentication is gaining traction and ubiquity.
If your digital bank offers this feature, you should start using it. It's way easier to steal a personal identification number than a fingerprint. Multifactor authentication is another very secure feature used by some financial institutions. It consists of biometrics combined with a password and/or security token (a code number that the bank sends to your phone to verify it's really you).
Just like you would be discreet when typing your bank password at an ATM, you need to be careful when inserting your bank information on your phone in public. Save all your passwords and key accesses safely. Exit your app when you're done using it. And, finally, leave more important operations like check deposits for when you're alone.
As rare as a hack is, all organizations with an online presence are exposed to it. Large companies such as Target, Facebook, and others already had their systems hacked, so there is a small risk of that happening. However, if it does, your bank will almost certainly notify you so you can freeze all operations and change your passwords. Thus, it is important to keep an eye on your digital bank notifications. Also, if that happens, stop your financial activity until the bank instructs you otherwise. But keep in mind, the chances of that happening are extremely low, and if they do, you and the bank are insured for this type of scenario.
If you are still considering a transition to an online bank, maybe understanding their pros and cons can help you make this decision.
Better Interest Rates: Online banks have a particular advantage in terms of delivering a higher annual percentage yield. This is because they spend less on staff and branch operations.
Lower or No Fees: While most traditional banks charge maintenance fees, digital banks usually charge lower to no fees from their customers. On top of that, most digital banks don’t require a minimum balance.
Better Interface: Traditional banks’ apps and websites are frequently harder to navigate. That is because online banking technology is not their primary operation. But when it comes to online banks, it is their only operation and the only place where customers interact with the business. Thus, digital banks spend a lot of time and capital optimizing these platforms. The result is easy-to-navigate apps and websites.
Lack of Face-to-Face Customer Service: Many people value an in-person conversation. It can be easier to explain any eventual demand when you are in front of a real person. With online banks, the customer service relationship will be usually done either through an in-app chat or by phone.
Non-Exclusivity Online: Most traditional banks now provide online/mobile banking too, so you don't have to go to an online bank to take advantage of these features. However, as explained, the online user experience of digital banks tends to be smoother.
If by now you are convinced that choosing the best interest rates, easy accessibility and low fees of a digital bank is the right decision, it’s time to analyze your options. There are many very good online banks available. Deciding which one is the best will ultimately depend on your financial needs. Still, if you need some help to start, here are some of the best digital banks in 2021 with checking and savings accounts (without a necessary order):
These banks are good options based on their interest rates, insurance, online interface, customer service, and low to no fees. These are the main advantages of picking a digital bank. There are many other bank options out there, and at least one of them will definitely fit your financial goals and needs.