Personal Finance

5 Things to Consider Before Choosing an Online Bank

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Bank customers have preferred online banking to in-branch banking since 2009, and the preference for mobile banking has continued to rise, according to a recent survey from the American Bankers Association.

Advances in technology have made it so customers seldom have to visit a branch to do their banking. Apps, online account management, direct deposit, ATMs — these tools make banking more accessible.

Still, 18% of American adults prefer traditional banking. If you’re among the 39% who prefer Internet banking or the 8% who favor mobile banking, maybe an online-only bank is right for you.

The ABA survey, which interviewed 1,000 American adults from July 11 to 17 and has a margin of error of plus or minus 3.1 percentage points, asked about preferred banking method, not institution type. Those whose preference was online banking include customers of banks with both branch and online options. It found that the percentages of consumers who prefer online and branch banking didn’t change from 2012 to 2013, but the share of those who prefer mobile banking increased 2 percentage points. Preference for ATMs decreased from 12% to 11% in 2013, as did the preference for banking by mail and telephone (both 7% in 2013). Eleven percent didn’t have a preference, up from 8% in 2012.

As with all financial products, the best one for you depends on your needs. If you’re thinking about going digital, whether for one account or all your banking, there are several things to keep in mind before making a switch.

1. Verify it’s a real bank.

It seems like an obvious point, but the Internet is rife with scammers, and you want to be certain your money is with a legitimate institution. Check that the site is secure and that the bank is FDIC-insured.

2. Match the bank’s services to your needs.

This is a big one, not just for those looking for an online bank but for any consumer choosing a financial institution. Specifically, with online banking, it’s important to know you can accomplish what you need to do.

If you need to deposit physical checks, your bank needs to have a way for you to do that. Lacking a physical branch, most banks offer a mobile app or accept checks in the mail. You may get paid by direct deposit and pay all your bills online, but when that birthday check from grandma comes in, you’ll be reminded that not everyone has gone paperless.

For customers looking for ways to save, online banks often offer great interest rates, one of the benefits of not having to maintain brick-and-mortar branches. But there’s more to banking than checking and savings accounts. If you plan to look to your bank for a loan in the future, you’ll want to make sure that and any other service you may want will be available through the online bank.

3. Make sure you understand and are comfortable with the terms and fees.

Once you’ve determined whether a bank offers the right services, you need to be OK with the costs, if any. As with debit cards from traditional banks, ATM transactions can get pricey if you don’t know the terms of the card. Account terms are a need-to-know for all consumers, regardless of financial institution.

4. Make sure you’re comfortable, period.

Some people don’t like the idea of taking pictures of checks as a way to deposit them over a mobile app. Others like to know they have the option of going to a branch to discuss matters with a bank employee, face-to-face.

“There’s a little bit more dynamic, a little bit of back and forth,” said Nessa Feddis, senior vice president of consumer protection and payments for the American Bankers Association. “Instead of a one-way customer just evaluating on their own and reading materials, versus two people sitting down and looking at the different options and discussing it.”

5. Will you use online banking properly?

Choosing a bank isn’t just about having a place to send your paycheck, it’s also about protecting your assets.

Think of the security measures taken at bank branches: Alarms, surveillance, vaults, bullet-proof glass. The computer and Internet connection used for online banking needs to be just as secure.

This is one of the biggest, if not the most important, differences between online banks and traditional banks. The online bank may have everything you’re looking for, but you have to be willing to protect yourself.

“You must make absolutely certain you will access your account from a secure computer with and up-to-date anti-virus and malware program,” said Gerri Detweiler, Credit.com’s director of consumer education. “If you’re lax about that, then this isn’t a good option for you. If you only use a computer that is shared by your family — including your kids who are surfing and downloading heaven knows what — then don’t set your system to remember your password.”

Password protection is a huge factor in digital banking. Adam Levin, co-founder and chairman of Credit.com, says devices used to access banking information need to be password protected, and the passwords for bank accounts should not be saved to the device.  Choosing convenience over security, like saving passwords, using easy passwords and leaving devices unprotected, makes it much easier for a criminal to steal your information.

“Your identity and your credit, these are portfolios and these must be managed as assets,” Levin says. Protecting your finances means practicing diligence: Making sure apps and sites are secure and authentic, avoiding banking on unfamiliar Wi-Fi portals and limiting others’ access to your devices.

The conveniences of the Internet don’t mix with laziness. As with any other account, consumers need to monitor their statements for unauthorized activity. It can be a lot of work to protect your information online, but it’s necessary and worth it to protect your identity and financial future.

 Image: Fuse

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