Since the Great Recession, banks and consumers have had an uneasy partnership. Tighter federal regulations have prompted many institutions to introduce new fees on checking accounts, and the Federal Reserve's low-interest-rate policies have helped keep the typical savings account yield below the rate of inflation. These conditions have not endeared banks to their customers.
But amid the discontent over rising fees and falling rates, online banks have sought to position themselves as an alternative. Online banks reject the traditional banking model, reaching customers through their websites instead of local branches. As a result of their lower overhead, they can offer perks that traditional banks may struggle to match.
While the online-bank concept can feel foreign to those who have only known brick-and-mortar banks, there are several reasons to consider switching to an online bank today. Here are five of the most compelling.
1. They offer higher rates
Many online banks today strive to offer top yields on savings and money market accounts, targeting savers who have grown weary of near-zero interest rates. The most recent MoneyRates.com America's Best Rates feature indicates that the average savings account rate at online banks was nearly three times the average rate at traditional banks.
In addition, the survey found that average online bank rates rose in the third quarter of 2012 as average rates at traditional banks fell, indicating that the divide between the two is growing. If your savings or money market account is only offering an average yield, finding an online bank that will double or triple that rate isn't likely to be difficult.
2. They charge less in fees
Checking account fees have become a flashpoint for consumers. Countless traditional banks have tested new fees in recent years, but the results haven't always been pretty -- witness Bank of America's jittery attempts to institute new fees on checking accounts.
The most recent MoneyRates.com Bank Fees Survey indicates that checking accounts at online banks are more than twice as likely to be free of monthly maintenance fees as the checking accounts at traditional banks. And when they do charge fees -- for things such as overdrafts -- online banks charge lower amounts on average, according to the survey figures.
3. New technology has made them more accessible
While online banks have long produced innovative websites, they haven't stopped developing new ways to make online banking simpler. Technologies that make it possible to deposit checks through your computer or smartphone are among the latest perks.
The eCheck Deposit system from Ally Bank, for example, allows you to photograph or scan your checks with a smartphone and deposit them via Ally's app or website. While paper checks are becoming more of a rarity today, online banks are still doing more to attract customers who prefer them.
4. Most have extensive ATM networks
Many major online banks have partnered with national ATM networks to offer widespread, fee-free access for customers. Discover Bank, for instance, offers account access through an ATM network of more than 675,000 machines in 75 nations, and many other online banks offer their own extensive networks to provide customers easy access to cash.
Like traditional banks, using your online bank account for non-network ATM transactions may result in a fee. But according to the latest MoneyRates.com fee survey, online banks charge a lower amount than traditional banks for this privilege.
5. Your branch may be on the chopping block anyway
It's no secret that the neighborhood bank branch is falling out of favor. With even traditional banks embracing the convenience of online banking, fewer customers are finding it necessary to visit their local branch. And because these locations are costly to banks, expect to see more of them closing in the near future.
Bank of America CEO Brian Moynihan reportedly said on a 2012 conference call that the company intends to shed 750 of its branches in the years ahead. As more banks follow suit, it's possible your neighborhood branch will disappear too, leaving you reliant on distant branches or your bank's online services. If that prospect sounds unappealing, making the jump now to a dedicated online bank may make sense.
If your bank's branches are a major perk for you, you may not be ready for an online bank yet. But if you, like many customers, find yourself going longer and longer between branch visits -- or you're just tired of low rates and high fees -- online banks may offer an enticing alternative.