These days online banks have become more and more popular particularly with the millennial generation. I LOVE online banks; they’re much more flexible than traditional banks, offer some pretty great benefits, and are a cinch to use. My first experience with an online bank was by mistake, but I quickly became in love with the concept. In my view, there are many reasons why you should consider online banks.

My First Experience With Online Banks

A while ago, I opened an online bank account with Scottrade. It made perfect sense for me to do it. If you have a Scottrade account, you’ve likely inevitably wanted to withdraw money from your brokerage account. Well, that’s a big issue because they have a very outdated system!

You have to actually call the guys at Scottrade and ask them to send you a physical check by mail! Crazy right? Well one of the guys finally told me that if I opened a Scottrade online bank account I could actually transfer the money from my brokerage account to that bank. From my Scottrade bank account I could then transfer the money to an external bank.

That made life so much easier for me. Now I can get money into my Wells Fargo account in a matter of days instead of waiting for the check by mail and then doing a mobile deposit!

Scottrade even sent me an ATM card for the account, which I didn’t really care for…that is until I read the rules for the card! The debit card they gave me waives “reasonable” ATM fees at the end of the month. I rarely carry cash, but I thought it was a neat feature.

Now I can literally take money out of any ATM without any fees (and yes, I’ve tried it in Mexico before)! This great experience with Scottrade opened my eyes to the wonders of online banking.

Why You Should Consider Online Banks

These days we have online shopping, online classrooms, and even online auction houses. Why not have online banks? Online banking offers a variety of benefits, but here are the two I care most about: (1) better convenience and (2) better rates.

Better Convenience

Like many online service offerings, online banking is extremely convenient for use.

I mean when was the last time you actually went into a bank? I can only name two instances over the past four years that I’ve actually set foot in a bank…One of them was simply to see if they had Canadian Dollars before a trip to Toronto.

These days, we really don’t need physical banks as much anymore. Large financial institutions are closing down banks and just investing in advanced ATMs (the cost savings are tremendous). I think the teller will eventually be a job of the past.

Better Rates 

Online banks are able to give consumers MUCH better rates on savings accounts and other offerings because they don’t have the same infrastructure as traditional banks.

They don’t have to hire tellers, retail bank managers, or security. Plus, they don’t have to rent physical space to set up a location. Online banks only have a fixed infrastructure base with the online platform and back office support employees.

As a result, the best online banks can offer savings account interest rates up to 1.0% (or higher). Guess what the national average rate is for savings accounts in the US?

*Drum roll*…the national average for savings accounts in the US is 0.06% as of 12/12/16. This means you can earn 17x more interest from an online bank!

The situation is even better for me. Just think about this: my Wells Fargo saving account offers .01% interest. As you can imagine, I don’t have much money sitting in that account (in fact I have less than $200 there). In contrast, Synchrony Financial’s high yield savings account pays me 1.05% APY, which is over 100 times what I get from Wells Fargo! That’s insane!

The One Downside Of Online Banks

To be honest, I had a hard time coming up with the cons of going with an online bank. I’m usually a proponent of moving things online because of the convenience and efficiency factors.

The biggest downside of doing online banking is that you don’t really have a ‘relationship’ with your bank. If you had an account with a more traditional banker like say Wells Fargo or Chase, you might have established a rapport with your local branch.

This relationship might be important if you’re trying to get other services from the bank such as opening a brokerage account or even getting a home/business loan. With online banking, there isn’t really a possibility to know your banker. However, I still tend to believe the benefits of online banking outweigh the negatives.

Which High Yield Savings Account Should You Choose?

As I mentioned before, the great thing about online banks is they can offer higher interest rates on your savings account.

I have some extra cash sitting around that I haven’t invested and it sucks losing a little bit of that hard earned moolah to inflation. By earning 1% on your cash that’s just sitting in the bank, you can cut the detrimental impact of inflation by 25%- 33% (assuming 3% – 4% inflation)!

I did a search on Bankrate; here are some of the best high yield savings accounts with no account minimum requirements:

Synchrony Financial

Synchrony Financial is the spin-off of GE’s retail finance division that was founded in 2003. For those interested, it is actually a public company (SYF).

Synchrony Bank offers one of the highest yields on your savings account that I am aware of (at least in the US). They offer 1.05% APY with NO monthly service fee or minimum balance requirements! Synchrony also provides customers with an ATM card.

Click here to sign up with Synchrony bank and start having your cash work for you!

Ally Bank

Ally Bank is a unit of Ally Financial, which used to be part of GM’s finance arm.

This online bank offers customers 1.0% interest on their savings account. The great thing about this savings account is that it can be linked to a free checking account for overdraft protection.

The Ally Bank savings account has no monthly fees or minimum balance requirements.

Click here to sign up for Ally Bank’s amazing high yield savings offering.

High Yield Savings Account For My Mom

Earlier this year, my mom retired from decades of service in the US Postal Office! She’s much happier and loves to spend the extra time with my nephew when my sister and her husband are off at work. It’s a win-win for everyone.

My mom gets a check every month from her government pension. When I went back for thanksgiving she asked me about banks that would offer her a better yield for her cash (she also uses Wells Fargo).

She didn’t really want to invest in a CD or short-term treasury securities. She wanted the cash to be readily available.

I decided to sign her up with Ally Bank. Although the interest rate is lower than Synchrony, Ally offered a great checking account solution. Plus, I’ve heard great things about Ally’s 24/7 online customer service support. And for someone like my mom who isn’t so tech savvy, the better customer support was an important factor.

After a month of using it, my mom is pretty happy with the service. I taught her how to use the Ally Bank app and now she earns a decent rate on her cash!

Conclusion

Online banks are a great tool to help manage your financial wealth. Sometimes we just have extra cash sitting around for whatever reason. Having a high yield savings account is a great way to reduce the impact of inflation.

Readers, what do you think about online banks? Do any of you exclusively use online banks or have a high yield savings account? I’d love to hear your thoughts about the subject!