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Should I switch to an online bank?

May 05, 2014

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

higher savings account rates

Q: A high-interest online savings account caught my eye. If I need money, how could I make a withdrawal without going to the bank? I'm middle-aged and used to doing things the "traditional" way, but I noticed the high interest rate and wanted to inquire.

A: There is certainly a generational change going on in banking. Young adults are confidently taking advantage of mobile apps and other online tools, while older customers are seeing their traditional point of contact with their banks -- the local branch -- steadily falling more and more out of fashion.

Technology is not an insurmountable barrier though. Younger users may have been the first to embrace the Internet, but online participation rates for older groups are steadily rising.

Of course, you still are not limited to banking online, even if you are in search of higher interest rates. In MoneyRates.com's most recent America's Best Rates survey, while the average rate for online savings accounts was more than five times the average for traditional accounts, the top savings account rate was available through a branch system, and there were two other traditional savings accounts in the top 10.

To answer your specific question though, on how you would withdraw your money from an online savings account, the details vary from institution to institution. Typically though, there are three options:

  1. ATM network. While online accounts may not have traditional branch systems associated with them, you will probably find that they have made arrangements to allow access through various ATM networks. This is an important issue to check out if you choose an online bank. Make sure you will have free access to your account through conveniently located ATMs, as accessing your money through unaffiliated ATMs could get very expensive.
  2. Electronic transfer. For account transfers, you can provide electronic instructions for the bank to transfer money to another account. For example, if you still like to do most of your banking the traditional way, you could maintain a checking account at a local branch, while taking advantage of higher savings account rates online. Then, you would simply transfer money between the accounts electronically when needed.
  3. Scheduled transfers. Some banks allow you to set up transfers at regularly scheduled intervals. This would work the same as an electronic transfer, only it would occur automatically.

Ultimately, customers like yourself who favor traditional banking might be induced to change their ways with both a carrot and a stick. The carrot is the tendency of online banks to offer higher interest rates and lower fees and minimums. The stick is that as banks put less and less emphasis on costly branch networks, customers with fewer nearby branches to choose from may be forced to consider online banking.

Got a question about saving, investing or banking? MoneyRates.com invites you to submit your questions to its "Ask the Expert" feature. Just go to the MoneyRates.com home page and look for the "Ask the Expert" box on the lower left.

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