How To Choose An Online Bank | Picking An Internet Bank

Posted by Banks on September 9, 2011 · Leave a Comment

How To Choose An Online Bank | Picking An Internet Bank

The Internet has taken banking and added a whole new dimension to it, and this is what we get to enjoy today as online banking. There’s no doubt that this development is allowing us to manage our money in ways we only dreamed about twenty years ago. It’s safe to say that the Internet is one of the best things that could have happened to the financial industry, if only for the cost savings and opportunities that it is allowing. We’re talking about being able to access your account at any time, anywhere in the world, on almost any platform (including your cell phone), and performing most transactions you previously had to go to a branch for. So when people are choosing banks to do their business with, the online component is analyzed in detail.

On top of the convenience factor, there’s the fact that because of financial regulation, banks lost quite a few revenue sources. In an attempt to make up for that lost revenue, most of them have stopped offering perks such as free checking. As a result, money-conscious people have started looking for alternatives, from smaller regional banks and credit unions, to full-fledged online banks. Now while a lot of people might be a bit uneasy about a bank that has no brick-and-mortar branches, if you already handle most of your transactions on a computer and/or mobile device, it might not as big a difference as you may think.

Of course, everyone knows that the convenience that the Internet brings has its drawbacks, since it can also be a very inviting environment for scammers and swindlers. So how do you choose an online bank without risking your money? There are a few considerations to keep in mind, some more important than others.

Choose a bank that’s legitimate, secure, and stable

It goes without saying that you want your online bank of choice to be a company you can trust. There are a variety of ways you can check that.

I would start off with a WHOIS of the bank’s domain name. Since banks are corporations, you shouldn’t see that name registered to an individual. Also, while you’re there, jot down the address and phone number for more in-depth investigation.
The numbers for telephone and fax service should be different. Any self-respecting banking institution will not have a single line doing double duty.
Back to that address: it should be a legitimate street address, not a P.O. Box.
Call 411 to make sure the bank’s telephone number matches the address that is listed, although you should also keep in mind that some banks have a central location where they answer general calls.
Check your browser: you should see a padlock either in the address bar or at the bottom of your screen. Because of the sensitive nature of the information that they handle, all banks secure their websites. This is to confirm that your information is encrypted and cannot be viewed by anyone else. If you don’t see that, you should close your browser and pick another bank. You want a bank with a high standard for customer passwords. For example, you should be required to complete extra verification steps if you’re logging in from a different computer. You also want to have the ability to receive alerts when transactions over a certain dollar amount or outside a particular geographic range are made.
You can do a search for ["bank name" reviews] to see what other people have to say about the bank you’re considering. As previously, it’s recommended you take this with a grain of salt and use common sense: no business has all-positive nor all-negative reviews.
Get a sense of the bank’s stability. The bank’s website can inform you on how large the bank’s asset base is and how long they’ve been in business. Now if you’re dealing with a bigger, publicly traded company, there are tons of websites where you can check its stock price and read its financial reports. Keep in mind that the information that you see on these reports are a reflection of the past, not guarantees of the future. Nevertheless, it remains true that smaller and/or newer banks will be more vulnerable to economic fluctuations than their bigger, older, and more capitalized counterparts.

Make sure your deposits are FDIC-insured

This is an equally important consideration. The Federal Deposit Insurance Corporation is a United States government corporation created by the Glass–Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank. In the event that the your bank goes bankrupt, you don’t want to be left holding the proverbial bag: deposit insurance gives you the chance to get your money back, sometimes with accrued interest. Don’t just assume the bank is FDIC insured just because you saw the FDIC logo on the website. Go to the agency’s website and put in the bank’s name to search for it in the FDIC’s Bank Find tool. One important thing to know: FDIC insurance only applies to banks operating in the U.S., so any bank operating overseas cannot be FDIC-insured. On the other hand, an international bank with branches in the United States can be FDIC insured.

Compare features with fees

You have to take into account that there is usually a trade-off between features and fees, meaning that the more features you want, the more fees you are going to pay (in general). So it matters for you to determine what your needs are. The more specific you can get about that, the better. Do you just want the highest interest rate on your savings? Or do you also need a checking account? Do you only do a handful of transactions every month or will you be making regular deposits and withdrawals? Does the bank have a network of ATMs that customers can use free of charge? Does it offer 24-hour assistance in case you have a question (especially important since this will be your only means of live communication with the bank in case you have a problem)? Do you need paper checks (for example if you have to make regular payments by check to a merchant, service provider or landlord)? Do you receive money via paper checks instead of direct deposit? Each of these needs requires that your online bank provide a specific type of feature, so be on the lookout and check that what you pay for really fits your needs. Remember that one of the biggest free perks you will want is free online bill pay so you can pay your monthly bills via online banking, allowing you to save on trips to the post office, stamps, checks, paper and envelopes.