The Six Biggest Crimes of Online Banks

It has been over 15 years now since I opened my first online savings accounts with ING Direct (now Capital One 360) and HSBC Direct (now HSBC Advance). In that time, I have experienced a lot of different service levels and experienced certain frustration (many that I share with BestCashCow readers as I see from the comments on our tables).

Let me begin by saying that I can deal with not making my funds immediately available through long hold times, although 10 business days at Sallie Mae Bank is the absolute maximum I will tolerate. I can also deal with ACH transfers that take a couple of days, although I find Marcus’s and Purepoint’s immediate outbound transfers to be a real selling point versus their competitors.

What I cannot deal with are the following.

1. Touching my Money with Silly Fees. A paper account maintenance fee that users cannot get out of is a pure outrage in an online bank (Incredible Bank). Even with a deposit of $250,000, it reduced the interest earned by about 5% a month (and much more than that for lower deposit amounts). While I am not aware of any banks that are currently charging outbound transfer fees, I have seen banks in the past charge fees of $3 to $5 per transfer. I find it attractive when a bank like Marcus says “We will never ever charge you a fee”.

2. Limiting my Ability to Access My Money. While I am a co-founder of BestCashCow, I have never ever had my portfolio entirely in cash. Rather, I am a self-directed investor who frequently needs to access my cash in order to buy bonds and equities. The very nature of a savings or money market account is that you are getting liquidity. A CD sacrifices liquidity. If I need $100,000 from a savings account, and a bank tells me that I can only have $3,000 right now, I find it patronizing and condescending regardless of their savings rate. I have seen this a lot from some of the lesser known banks on BestCashCow’s tables, but the major online banks (Marcus, Synchrony, Ally, Purepoint, CIT, Barclays, Amex) have never played this game.

3. Not Providing a Fully Functional Website. The major online banks are competing to provide the best interfaces and the best mobile apps (at the moment, I believe Ally has the best mobile apps). But, some banks cannot even seem to offer a working website with high availability times (for example, Banco Popular). Others are angling for your deposits with websites that haven’t been enhanced since 1998 (IGobanking, VirtualBank, Colorado Federal). It is 2018 already! I might be inclined to open an online CD with a bank that doesn’t offer a fully functional website, but I wouldn’t put my savings and money market money in one that doesn’t.

4. Not Showing Inbound Transfer Information Instantaneously. When a online bank takes $500 from a corresponding bank, that information should be listed immediately as a credit to the online account or at the very least as a pending inbound transfer. With some smaller online banks, I’ve had to make a phone call to confirm that they have drawn the money and will credit me. That’s time on the phone that I could be spending doing something else.

5. Providing limited phone support. The great news here is that with most of the major online banks, it is virtually never necessary to pick up the phone to speak with someone. However, if you ever need to, it is nice to know that someone is there. I have been surprised by the absence of phone hour support at some major online banks on the weekend (eg. Sallie Mae Bank). But there are comments in the BestCashCow tables from users who have been simply unable to access phone support at some of the smaller online banks (AbleBanking, VirtualBank).

6. Excluding existing customers from receiving the best savings and money market rates. I have saved the one fault that I really find terribly outlandish until the end. Now that rates are rising, some banks have found it profitable to advertise their new rates, but continue to give existing depositors a lower rate. Of the major online banks, only CIT Bank has incorporated this game into their business model (even now drawing customers in with a savings rate and then to turn and offer a still higher money market rate to new customers). The good news with CIT is that they do allow you to “upgrade” to the higher rate with a phone call. Other banks (like Flushing Bank, through its IGoBanking and BankPurely subsidiaries) require that you apply for an entirely new account to get the higher rate. Still others simply treat existing account holders like pariahs (BestCashCow and our affiliates do not classify Salem Five as an online bank as a result of their long history of quietly lowering the rates that they provide to existing customers without providing any disclosure or evidence of the new rate on their website, as well as their violations of numbers 1 and 2 above).

Now that online savings rates are going up so much faster than those of the major money center banks (Citibank, Chase, Wells Fargo and Bank of America), opening an online savings account as a place to stash your cash makes more sense than it ever has before. But, you should also carefully consider the experience of others. For this reason, we recommend looking at the star system and the comments provided by other BestCashCow users with a bank listing on our rate tables.

Always check savings and CD rates from banks and credit unions near you.

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