A place to live. Food. Water. A banking relationship. What do all of these things have in common? You can’t live without them. It is impossible to live and spend money in the United States without a bank of some sort. Unlike other financial products, such as life insurance, a Roth IRA, or even credit cards, you cannot live without a bank. The first financial account you ever had may have been a checking account at your local bank. Choosing the right bank is essential to starting your financial life out on the right foot, or, if you are switching banks, building a stronger foundation underneath your finances.

Online banks vs. brick-and-mortar

I am (barely) old enough to remember when the general public was skeptical of banking online and preferred face-to-face banking rather than using a website or app. Now, only 29% of Americans prefer banking in-person. Almost all brick-and-mortar banks offer online services to their customers, but they still lag behind in many key areas. Online-only banks offer APYs 10x higher than traditional banks. It’s not all the fault of the brick-and-mortar bank; the cost to maintain physical locations certainly means they can’t compete as well on savings account interest rates.

We don’t necessarily advocate for dumping your brick-and-mortar bank, but we do think everyone should at least investigate whether or not an online bank might be a better solution for your savings account due to the difference in interest rates. If you don’t mind having more than one bank in your life, you could keep some money at your local bank and the rest in an online, high-yield savings account. There are valid reasons to utilize the services of a brick-and-mortar bank. If you are a server or in another industry where you handle a lot of cash, it is much easier to deposit that cash if you have a physical bank to go to. Sometimes it’s just easier to go down to your local bank and talk to someone rather than dealing with online customer support. An online bank may be able to meet all of your banking needs, but some still need, or want, the services offered by a brick-and-mortar bank.

How to choose the right online bank

Online banks attract consumers because of their convenience and higher interest rates than brick-and-mortar competitors. For those worried about safety, online banks typically have the same FDIC coverage as traditional banks. For most consumers, your money is just as safe at an online bank and you get the convenience of banking online and are typically rewarded with higher interest rates.

There are more online banks now than there were in the past, but a large number of them aren’t actually banks. Many of the most popular and fastest-growing banks aren’t actually banks at all, but financial technology companies backed by real banks, or neobanks. This isn’t necessarily a problem, as your money is still technically held at a real bank that is almost always FDIC-insured, but it can cause some issues you wouldn’t experience if you were using a real online bank.

Yotta is a popular financial technology company, or neobank, that has gamified saving money on their platform. They may have taken it a little too far, leaning too heavily into the gamifying aspect of their services, and ultimately, turning into a form of gambling. Now customers are unable to get their money out of the financial technology company. Perhaps the largest bank-that-isn’t-actually-a-bank, Chime, has its own share of unique issues. I am a former customer of Chime and was a little unsettled reading horror story after horror story of other customers having their account closed for no reason and often unable to get their money back. ProPublica covered the issue in-depth and made sure to emphasize that Chime was not, in fact, a bank.

The worst-case scenario of your account being closed or being unable to access your money might not happen to you, but I have found financial technology companies that offer banking services prioritize the technology over the banking services. With my former neobank, the website was seriously barebones, and you could only do most things from the app. This isn’t always a problem, but sometimes I only had access to my computer. The final straw was being unable to order checks. Yes, I know hardly anyone uses checks anymore, and I use them so infrequently that it hadn’t been an issue, but my neobank was unable to provide me with checks even though I was willing to pay for them.

Online banks are great, but it may be worth sticking with an actual online bank instead of a financial technology company that isn’t a true bank. Myself and some others at The Money Guy Show use Ally Bank. They offer competitive savings account rates and they have been in business for over 100 years now. No matter what bank you end up choosing, look for a bank that is actually a bank, is FDIC insured, offers competitive rates, and didn’t just pop up overnight.

A checking account at a bank isn’t as sexy as a Roth IRA or 401(k), but having a great bank is foundational to your financial life. It can mean the difference between your money being there when you need it or your money not being there. A higher yield on your savings account might mean achieving financial goals, like saving for your first home, just a little bit sooner. Don’t overlook your decision of who to bank with, and while switching banks is never easy, it could put extra money in your pocket or even save you from a nightmare scenario of losing access to your money.

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