The world’s shortest and most simplified banking history lesson: First, we had the caveman who was best with rock-management and who would then hold onto the community’s rocks. Then skip ahead 1,600 or some odd years to brick-and-mortar banks. Then online banking came into vogue. Now there’s this new thing called virtual banks (or direct banks). Not sure what will be next. Maybe we ourselves will become the banks like how we check ourselves out at the supermarket or make our own travel arrangements, cutting out the middleman and the experts entirely. But for now, let’s figure out the virtual bank trend. Is virtual banking safe?
It started with online banking
People discovered that delivering limited online services as opposed to the brick-and-mortar establishments reduce operating costs. And if there are three words that business people love, they are “reduce operating costs.” Online banking is not just a stay-rich scheme. It often comes with improved websites that feature the ability to open new accounts, download forms and process loan applications. But you always have the option to go to a brick-and-mortar, should you choose to. Now they’re taking it one step further and really kicking it up a notch.
The age of virtuality
These virtual establishments are banking institutions … without the bank. What this means is that there is no physical network of branches that one may stop into. It is all online. It is all virtual. These banks — called virtual banks or direct banks —pass savings in labor and overhead costs on to their customers by way of higher interest rates on deposit accounts, lower loan costs and reduced service fees.
Further benefits
It’s silly just how convenient a direct bank is. No fighting with tellers, no hustling to find the nearest branch during your work break. Everything can be done from your computer. And, of course, this also now extends to your jack-of-all-trades, fancy-pants smartphones. Of course, these virtual banks are open 24 hours a day, 365 days a year. Real-time account balances and information are available at the touch of a few buttons. On this virtual path, banking is faster, easier, cheaper and more efficient. Staying on top of your account balances is easier than ever before. Updating and maintaining a direct account is also easier. It takes only minutes to change your mailing address, order additional checks (or more likely send an electronic check) and check for current interest rates.
The rates for online banking are almost always lower when it comes to mortgages and other loans. Again, this is due to the dramatic reduction in labor and overhead fees that the companies pass on to their customers. Some offer high-yield checking accounts, high-yield CDs and no-penalty CDs for early withdrawal. Some accounts can be opened with no minimum deposits and carry no minimum balance or service fees.
The online services that are offered with virtual banking are more significant than many brick-and-mortar banks. Things like functional budgeting and forecasting tools, financial planning capabilities, investment analysis tools, loan calculators and equity trading platforms are often available. They also offer free online bill paying, online tax forms and tax preparation.
It is easier than ever to make transfers. Plus, most electronic banks provide the service — and unlimited transfers, too — at no additional fee. They will also accept direct deposits and withdrawals that you authorize, such as payroll deposits and automatic bill payment.
It is so easy! Online accounts are easy to set up and require no more information than a traditional bank account. Many offer the option of inputting your data online or downloading the forms and mailing them in.
The Drawbacks
You don’t get a real bank relationship with virtual banking services. You obviously won’t have the opportunity to develop a personal relationship with the bank. And I know what you’re thinking. You don’t need to hold hands with your bank and walk on the beach. But getting to know individuals at your bank when you need a loan can be handy. People like bank managers often have discretionary power and can pull strings for you if they like you.
When you have transaction issues, there is no face-to-face coverage for you to turn to. It is all virtual, remember? A traditional bank can host meetings and call in experts to solve a specific issue. In addition, international transactions may be more difficult (or impossible) with some direct banks. Especially if you regularly deposit cash, it might be a good reason to have an actual physical bank. This is because most virtual banks do not have their own ATMs. Unless an internet bank has a network alliance with another bank, you will be charged for your ATM use.
Just as virtual banks have some services that brick-and-mortars do not, virtual banks do not offer all the amenities that physical banks do. These include insurance and brokerage accounts, and special services for loyal customers. Notarization and bank signature guarantee, which are routine at most physical banks, aren’t generally offered for virtual services.
Security, security, security
Is virtual banking safe? This cannot be emphasized enough. And, of course, in the wake of the Cambridge Analytica scandal, I am sure that I do not need to. Although sophisticated encryption techniques are employed for the safety of their clients’ information and money, no system is perfect. Virtual banks are subject to phishing, hacker attacks, malware and other unauthorized activity. However, one advantage of online banking is that you are likely to find a security breach more quickly because your account balance is so accessible. The timely discovery of discrepancies can be reported and investigated immediately. Some electronic banks take this threat more seriously than others. If you decide to open up an account with a virtual bank, do your homework as to how they handle these types of threats.
Takeaway
Although both online and brick-and-mortar banks offer their own benefits and drawbacks, if you can help it, don’t use one method exclusively over the other. It might not be possible, but the best move is to split your banking between both in-store and online services and enjoy the conveniences and savings of internet banks while keeping the customer care and individual relationships a brick-and-mortar branch will provide.
To learn about the different types of bank accounts, check this out.
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