Online banks have, on average, offered lower account maintenance fees and higher APYs due to low overhead costs. Before you make the switch to an online-only bank, here are a few things to consider.
It’s all over the news: banks are slashing APY offers and account maintenance fees are going up. This is, in part, due to the economy and new federal regulations that make it harder for banks to generate revenue in ways to which they are accustomed. If your brick-and-mortar bank doesn’t seem to be offering competitive accounts anymore, you may be tempted to move to an online-only bank. However, before you make the jump to virtual accounts, there are some things to keep in mind.
First and foremost, take a look at your current banking habits. Do you like the ability to go into a physical branch and speak to a teller in person? Do you ever need to take out large cash withdrawals? (Most regular ATMs limit the amount you can withdraw at a time). How do you deposit money? Do you have paper checks to deposit often? Some online banks require you to mail in the check, but others (like USAA) allow you to scan in your check from your home computer and deposit it electronically.
If you decide an online bank is the best solution for one or all of your accounts, the next step is to investigate the bank you’re considering. You should make sure the bank is charted by the Federal Reserve and insured by the FDIC. Keep in mind that the FDIC only insures accounts up to $250,000. If your deposit exceeds that amount, you should spread out your deposit over multiple banks so that your savings are fully insured.
Next, you should see if the online bank has an affiliation with a brick-and-mortar bank or financial entity and check out that bank’s financial rating. If something happens to the online bank and your deposits are FDIC insured, you’ll get your money back, but depending on the situation, it could be a headache.
Then, check and double-check the fees for the account. Will you be charged if you call and speak to a live person (if a live person is available)? How good is their customer service? You may want to call their customer service line (as long as it’s free) and see how long of a wait time you have before your call is answered and how you are treated.
Some experts say that online-only banks will eventually replace most—if not all—brick-and-mortar stores, just like services like Netflix are replacing physical video stores like Blockbuster. However, just because online banks are the wave of the future doesn’t mean it’s necessarily the best banking choice for you today.
The new Federal Reserve regulations cause USAA Bank to end its debit card rewards program, but other account benefits remain unchanged.
USAA Bank has long offered some of the best checking and savings accounts around. This is because, in large part, the bank returned the majority of the money it collected from merchants to its members in the form of benefits, such as free checking, ATM fee refunds and debit rewards, according to the bank’s website. However, the new Federal Reserve regulations that will take affect October 1, 2011 affect the amount of debit card interchange fees. Consequently, this will reduce the revenue banks receive from merchants for debit card transactions.
Chances are, many other large banks will follow suit due to the regulations. The regulation caps the debit card interchange fees that retailers pay, but it exempts financial institutions with assets under $10 billion. Since USAA Bank has $48 billion in assets, this regulation will directly affect them, as well as many other banks.
As of September 1st, your USAA debit card will no longer earn rewards, but members who have earned rewards through one of USAA's debit card rewards programs in the past can redeem the rewards or receive a cash payout later in the year. The good news is that, unlike several other banks, USAA is not making any other changes to customers’ accounts. The bank is not adding fees or eliminating other benefits, including free checking and ATM fee refunds. Credit cards are not affected by this regulation, so USAA credit card rewards will remain unchanged.
Although customers may be disappointed in this change, USAA remains one of the best free checking accounts around. USAA’s free checking account allows unlimited free ATM use, no matter what ATM you use. If another bank charges you an ATM fee, USAA refunds the charge. This is limited to the first 10 ATM withdrawals per month and USAA will refund up to $15 on other banks’ ATM fees each month. They also offer free overdraft protection (they will automatically transfer the needed funds from your savings account or a credit card for free), they give you free checks, free online bill pay, they have no monthly service fees regardless of your checking account balance, and you get a free rewards debit card (PIN-based transactions are excluded). You also earn 0.10% APY interest on your checking account.
Over July and August, Bank of America will begin phasing out traditional checking account products and move a half-million customers to new accounts.
We've seen this pattern a lot over the last couple years: banks changing their account offerings, increasing fees, and making it more difficult for customers to maintain free accounts. Among other things, this is a response to financial losses from foreclosures and to new regulations that make it harder for banks to generate revenue, Boston.com reports.
The Bank of America move in July and August will affect over 530,000 customers in three states, including approximately 170,000 accounts in Massachusetts. However, just because you may not be one of the ones affected during the July and August transition, doesn't mean you're safe from the transition. By the end of the year, Bank of America plans to move all customers nationwide to their new accounts.
Some customers who were able to get free accounts though the MyAccess checking by maintaining a $1,500 account balance or by making direct deposits every month will see the requirements increase if they want to still get a free account. The new account that is replacing MyAccess is called Enhanced checking. To get a free account under Enhanced checking, you must make deposits totaling $2,000 each month, maintain at least $5,000 in combined accounts, or use a bank credit card (not a debit card) at least once a month to avoid the $15 monthly fee. Not all Bank of America credit cards qualify to get the monthly fee waived: secured cards and unsecured credit cards that are offered as a counter-offer, are not eligible for this service, according to the Bank of America website. Bank of America says that there will be more ways to avoid the monthly fees under the new account structures. Although there may be more ways, they may be more difficult ways.
According to reports, nearly half of all American households have some type of relationship with Bank of America. However, even smaller banks are implementing similar practices to try and make up for lost revenue. The Wall Street Journal reports that $5 ATM fees may be on the horizon in the near future. Chase, for example, is currently testing fees of $5 in Illinois and $4 in Texas for people who use a Chase ATM and aren’t a bank customer.
Depending on your current banking habits, the changes may not be an issue for you. If you already routinely maintain at least $5,000 in combined accounts, for example, you can keep your Bank of America free account. That’s why it’s always a good idea to regularly review your bank’s policies (and pay attention to any notices you receive in the mail), and determine how good of a fit the account is for your current habits.
