My friend Maggie likes to say her bank is in the cloud. That's not exactly true, but the bank where she has an interest-bearing checking account and a handful of CDs has not a single brick-and-mortar branch.
Here's why she decided to open a free online banking account. "I did it when the financial crisis was forcing banks to make changes, and it felt like I was getting fee change notices from my bank every week. Now, I don't pay for anything. I get great rates on my CDs, and I even earn a little interest on the money in my checking account. If I need to deposit a check, I just scan it. Within a day and a half it posts, just like a physical bank. I really like it."
Intrigued, I called Beth Coggins, a spokesperson at Ally Bank, one of a handful of "direct" banks that service customers online and by phone with nary a bank branch. What she tells me about her bank's practices is typical for other online-only banks.
"We're one hundred percent online banking, no brick and mortar branches," she says. "It's a different structure and we pass the savings on to customers." This is different from banking online at a conventional bank, where you can also drive to a bank and give your deposit to a teller. Instead of bank branches, Ally offers its clients (they have 1.14 million customer accounts) 24/7 live customer service.
To get cash, customers can use any ATM in the U.S. without a fee. If another bank levies a fee, Ally reimburses their customer at the end of the statement month. You can scan checks and deposit them electronically, too, or take a photo to deposit them via your smartphone.
Online only banks offer checking accounts, typically interest bearing, no-fee, no minimum balance, money market accounts and other investment vehicles like CDs and IRA products. They may have bonus programs tied to their debit cards to reward customers who use the card to make purchases. Or other catchy services like the ability to transfer money to someone else using his/her e-mail address or cellphone number.
So far, the deal is sounding pretty good. Maggie describes the two disadvantages she's encountered. "If you deposit a check for more than $5,000 at my online bank, it takes seven days to clear. And once, when I gave my dog trainer a check, he said he needed cash right away. Because there are no physical branches of my bank, he couldn't cash my check. I had to go to an ATM and get cash for him." For the same reason (no bricks and mortar), you cannot deposit cash. You have to transform it into a cashier's check or money order first. And, of course, with no bank branches, there are no safe deposit boxes.
I have to say, I'm tempted to jump ship to open an online banking account. But then I think of all the disentanging I'd have to do – the automatic payments like my health insurance premiums, and automatic deposits linked to my current account. "Maybe tomorrow," I sigh.