What to look for in an online bank
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Not all online banks are created equal. Here are a handful of things to consider when selecting an online bank.
Contents |
Security
Obviously you want a bank that takes your security seriously. Ideally a bank should have some type of security that goes beyond your password. One of the best ways to do this is with a keyfob device that generates a new number ever 90 seconds or so. When you login, you type in the number from the keyfob as part of your password. So even if someone guesses your password, they would have to physically have the device to get into your account.
You also want a bank that does a good job of verifying who you are when you call in. There are many different ways to accomplish this. Make sure that the verification questions they ask you are things that no one is easily able to find on their own. If all they ask you for is the last four digits of your social security number, you should be concerned.
Diversity of accounts
The ideal bank will have a variety of different accounts to choose from. When you need a different account, you don't want to start over at a different bank. Here are some of the accounts that you may want to look for:
- Individual Retirement Account
- Checking Accounts
- Savings Accounts
- Money Market Accounts
- Brokerage Account (for stock trades and purchases)
- Mutual Funds
- Credit Cards
- Home Mortgage
- Equity Line of Credit
- Car Loan
Obviously you probably won't need every type of account listed, but choosing a bank that has a wide variety of financial options means you can keep your dealings with a single institution. Many banks will lower their fees or give you additional perks if you have a substantial amount of your finances with them instead of spread out among multiple banks.
Bill payments
One of the most important aspects of online banking is the bill payment service. This is a key part of online banking. You want to make sure that there are no fees for using online bill payment. Banks should almost pay you to use it because it saves them so much processing on the backend of things.
Make sure that bill payments can be sent quickly and that you can send payments to people who aren't setup to receive direct deposit. The bill payments should cut a check if it is going to someone who isn't setup in their system for direct electronic payments.
The aware that bill payment works a little bit differently than paying with a check. When you write a check you have "float time". That's the time that the bank hasn't taken the money out of your account because the check is in the mail. when you use Bill pay it doesn't work like this. With Bill pay they take the money out of your account immediately and then write a check to whoever you're trying to pay. The check comes from third-party–not from you. The person your pain may be happy about this if they trust the third-party and figure they have money that you don't. However in some cases they may trust you more than third-party in submitting such a check may be cause for concern.
If the check is never cached the third-party keeps your money not you. This is probably one the biggest downsides of bill payment services. It's probably also why many of them offer their services for free. They may pay for this stance on a number of transactions. However just a few of those checks sent out and don't get cashed, they can still make a very good profit–even without charging you anything.
Another potential problem with Bill payments is that people may not recognize them. If they're expecting a check from you with a local return address, and a local postmark they may be surprised by what the letter looks like. They may not even be in an envelope it may be in something that looks like the way you get a check from the government or an insurance company. I had one situation where I work at a nonprofit that I also contributed to. I sent money through my bill payment service. The accounting department.i know what to do so they put in my mailbox could we saw had my name on it–they didn't realize it was actually contribution.
This is probably less of an issue nowadays because more and more people are using bill payment, still it's worth being aware of and thinking about how the payment is going to look to the person who receives it.
Access to cash
With an online bank, you need to make sure you have an easy way to get access to cash. Make sure you know what the ATM limits are. You don't want to get in a situation where you need $1,000 cash to buy a car that is a really good deal, only to discover that your ATM card limits you to $250 per day.
If you get into a situation where you need more cash than you can withdraw from an ATM you may have to look into getting money wired to a different account area usually you can wire much more money than you can pull out in an ATM. This is a case where local bank may be able to help you. A small account at a local bank that you can wire money into they be beneficial for taking money out. (Read below for some ways a local bank may help you in making deposits.) If you need money that you can't do that all at once you can transfer the money from your online bank to your local bank and then go pick it up in person. This can be a useful technique for getting to your money. Some online banks will charge you a fee for this type of transfer. However, many of them have started to allow you to link bank accounts in a way that does not charge any fee. Their ideas they want to make it easy for you as possible to put money into their accounts so they allow you to establish links to move money around.
You must be sure you understand the time frames that money can be transferred. Some types of transfers will take 24 hours. Others will take up to three days. Make sure you understand these things ahead of time because you don't want to get into a situation where you'd need some money or need cash to buy a used car that's a really good deal only to find you can't get the money for three days.
Also be aware of how the limits work on ATMs. Sometimes there is a per ATM limit and a per day total limit. For example you may have heard a total of $1000, but you may be limited to only two or $50 per ATM. You also need to make sure you know if it's per day or per 24-hour period. If it's per day and reset at midnight you may be able to get some money out of 10 PM and then come back and get the rest of what you need at seven in the morning. If it's per 24-hour period you may have to wait another day before you can pull money out. These are all good questions to ask your bank ahead of time because if you're in a situation where you really need to get cash you don't want to discover that things didn't work the way that you expected.
Making deposits
On the flip side of getting cash out, you also need to have a way to get money into your bank. Many online banks don't let you deposit money at ATMs. In those cases, you'll have to do the deposit via mail. If you deal with a lot of cash, this is problematic because you don't want to send cash through the mail. If you need to deposit cash, you'll want to make sure that there is a physical branch office near by or get an account at a different local bank where you can deposit money and then transfer it over to your online bank account.
Some banks are offering a very innovative way of depositing checks. You scan in the check, uploaded their website and they deposit the money to your account. Then you can throw the check away or keep it for reference. The automation in the banking industry that allows cash checks to be processed without having to be physically present allow for this. Wal-Mart does something like this at their point of sales. If you give them a check they can scan in and give it back to you. Their system automatically takes the money out of your account and they don't need the physical check in order to do it.
Of course this doesn't work very well if you're trying to deposit cash. If you need to deposit cash are going to have to have an 80 and accepts it. Even then some people have a problem with just beating cash into an ATM machine and hoping it shows up counted correctly in their account. One of the best solutions for this type of thing is to have an account at a physical bank where you can deposit money and then transfer it to your online bank. This does involve an extra step, and you can end up with fragmented financial accounts. Still the benefit of having a local bank can be significant. There are times where you may need to go in and talk to someone. For example you need to get something notarized your online bank is unlikely to be able to help you. Local banks often provide this service for free to their customers.