Online Banks Are Healthy, Growing, & 100% Safe

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Hiding Piggy BankSo far, 145 banks and thrifts have been closed by regulators since the start of the credit crisis in 2008. One hundred a forty five. Every Friday, when the FDIC usually announces closures, for the last two years, we’ve expected at least one bank to fail… sometimes two. Last week, five banks failed, bringing the 2009 total to 120.

Scary huh?

So you might be surprised to learn that not a single one of those failures was an online bank. In fact, the last time an online bank failed was back in 2007 when NetBank of Alpharetta, GA was closed. It was acquired by another online bank, ING Direct. Many people would have you think that your money is safer earning 0% at your local bank than 2% at an online bank.

So let’s change the pace of the discussion a little more, let’s talk about some good news. Everbank, one of the online banks I follow, recently announced that they acquired Tygris Commercial Finance Group, a commercial finance and leasing company. It will give them hundreds of millions of dollars of capital to grow their bank. They offer high interest rates on their savings accounts not because they need deposits to stave off failure, they offer high interest rates because they run a lean operation and can pass along those savings to customers. All online banks do this.

As an aside, Everbank is one of the most interesting of the online banks because they offer so many products other banks don’t. One prime example? MarketSafe FOREX Certificate of Deposits. No other bank I know of offers something like that. Does that make it a good investment? Not necessarily, but the option is there.

Another plus, Everbank offers a guaranteed interest rate of 2.51% for the first three months, putting it at the top when it comes to high yield savings account rates.

All of the online banks I ever write about on Bargaineering are FDIC insured up to $250,000. The FDIC insurance program protects your money so that even if the banks were to fail, you’re protected. If it’s protected by the government, why not go with the best interest rates available?

Other banks, especially brick and mortar ones who can’t compete, and mainstream media, who rely on fear to sell news, would have you believe that online banks are dangerous. They point to the 5% APY CDs once offered by Washington Mutual, saying high yields are a sign that a bank is going under.

It’s false. The reality is that online banks are stronger than ever, expanding and growing, and perfectly safe. Don’t believe the hype.

(Photo: corrieb)

{ 42 comments, please add your thoughts now! }

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42 Responses to “Online Banks Are Healthy, Growing, & 100% Safe”

  1. Anonymous says:

    I love my online bank. My checking account gets a great rate of 4% and my savings account rate is 2.5 %. Which is paid once a month. This bank is FDIC insuranced. Has some small requirements you have complete each month. But, it is worth it. This is a great example of letting your money work for you.

  2. I am happy to have an account in an online bank and I feel it is just as safe as my brick and mortar bank.

    Online banks are usually the best place for higher yields on savings accounts.

  3. yodie says:

    I totally agree online banking is great! It is safe, easy, and provide great rates. I bank online only…my checking account rate is 4% that is right 4%… My savings account rate is 2.5%. Rates accure daily and are paid out once a month. Great free money! Just doing what I would normally do at a regular bank. All accounts are FDIC insuranced.

    • Anthony says:

      Where are you guys getting such a good rate, in this day and age?

      • Jim says:

        There are some reward checking accounts offering those types of rates.

        • eric says:

          Yup, I had debated for a long time whether it was worth it to open a rewards checking account. Eventually I just did it to see if I could keep up with the requirements. It definitely took some getting used to but overall it isn’t as bad as I thought. I kinda have a system in place now to meet all of the requirements and the interest amount credited each month gives me a nice surprise. 🙂

          But back to the point, I basically think the invention of online banks/banking is amazing. The convenience and benefits are worth a lot.

  4. javi says:

    I love using ING Direct as my online savings bank. Knowing that it is FDIC insured and gives good rates helps protect my emergency fund.

  5. JPeteQ says:

    I’ve never had a problem with ING – which I can’t say for Chase, Key, or WaMu (Now Chase) I only keep a brick and mortar account to deposit checks.

    • daemondust says:

      They accept checks by mail. Not quite the same, but they take them. I wish they would open a program line USAA does where you send them a picture and the routing numbers and they deposit it.

      • mikestreb says:

        I wish any of my banks did that. As far as I can tell, only business accounts have to ability to do that at most bigger banks. I asked on of the people at my local bank when I was in doing something and the monthly fee was crazy (like $100+), the equipment was very pricey (I think around $500) and the setup fee was almost $1k.

        Some bank needs to start offering this for consumer accounts. I would signup with them in a heartbeat to save a trip to the bank and to see the money in my account sooner.

        I think the issue with using a regular old scanner is they need to see the MICR ink (it is like a magnetic ink that is used to print checks, so their scanners pick up the routing and account numbers – also I am sure it is a security thing).

        • daemondust says:

          I’m almost positive USAA is the only bank that does that for private accounts. It’s a shame, because I would use it if I could too. Not that I receive many checks, but bankers hours are really inconvenient.

          The magnetic ink only makes checks easier to scan. It isn’t strictly required. There really isn’t much required on a check. As long as I include all the data on a “real” check on a piece of paper, I could hand out checks on napkins and they would be just as valid.

          • mikestreb says:

            I just read up on USAA. Definitely don’t qualify for that. If you are/were in the armed services you qualify, but you need to have a credit card or loan through them too. I guess it makes sense, if you start scanning bad checks, they can just take it against the credit they have extended to you.

            Anyone know of any other banks that don’t require military service that offer something similar?

  6. David says:

    If a bank goes under and say I had 100k that’s well within the 250k FDIC coverage…how soon would I be able to access my funds? Is there a wait list? If so how does the wait list work?

    • Jim says:

      Usually the FDIC announces bank closures on a Friday and you can get access the following Monday. There’s no waitlist, that’s only for funds in excess of the FDIC coverage and I’m not 100% sure about how that works.

      • daemondust says:

        Those ‘Close on Friday Open on Monday’ ones are when another bank buys the old bank (at a substantial discount) and covers the deposits. This is usually what happens.

        If the bank DOES fold outright, FDIC generally pays in a week or two, but I believe technically has no maximum amount of time they have to pay.

  7. It’s not the fear of being unsafe that prevents my wife from banking online, as I do). It’s fear of sending sensitive information (SS#) over the Internet. Any comment of that aspect of online transactions?


    • @Mark Wolfinger – all of the statistics on identity theft point to higher risk in the ‘old mechanisms’ that were the financial services industry pre-internet. Theft of mail and the disproportionately high percentage of ID theft committed by persons known to the victim tell me that it is a much, much safer bet to bank online than in person or through the mail.

      Is it 100% safe? Hell no, but it takes a lot more skill to hack a sophisticated internet security suite than it does to steal your mail, take information from a check you write, record tidbits of data from statements laying out on your desk, etc. In other words, the pool of criminals is much smaller when it comes to online ID theft.

      If your wife has some time, checkout these stats that were aggregated from multiple sources:

      In particular, take a look at the ‘Methods’ and ‘Perpetrators’. This should shed some light.

    • daemondust says:

      The weakest point is your own computer. The encryption across the wire is very strong, and the bank’s computers are secured to an insane degree. Day to day activity on systems handling financial data is a huge pain in the butt, and a break-in should be found pretty quickly.

      Unfortunately, your computer might have key loggers, viruses, etc on it that records your SS#, login information and everything else you type. ING Direct takes a pretty good method of entry for your PIN. Instead of being text input, it’s pictures of a keypad. So anyone with malicious intent would have to record your mouse moves and clicks too. That doesn’t protect against shoulder surfing, but it’s generally easier to see someone behind you than a virus stealing your information. If you can’t use a mouse for whatever reason they randomize letters on the number buttons you can type in. They’re different every time to give the same level of protection from keystroke logging.

  8. zapeta says:

    I’ve had several online bank accounts and they’ve all been great. I do my brick and mortar banking at a credit union and I can look at their balance sheet every time I go in to a branch so I have no worries about them either.

  9. mikestreb says:

    I used ING and all of the other online banks way back when they were paying 5%. Now it isn’t worth the effort to put money away for 2% when inflation eats all of that up.

    I did the reward checking account route and love it. I did when they were paying 6%. They dropped it to 3% and I moved it to and have been with them ever since (they were 6.01% but dropped to 5.01%). I live in Ohio and they are in Missouri. Now you need to live in Missouri to start an account with them, but I had an account prior to that rule. I use them as my everyday checking account. I pay my mortgage, all of my utilities, any money that goes out is all done with their online bill pay (I use like 10 hand written checks a year).

    They do make you jump through a few small hoops to get the 5% but they are hoops I was already jumping through. 12 debit card transactions, 1 direct deposit or automatic payment, and online statements.

    The key to this, is you need a local bank/CU to deposit the cash and checks you get. This was the hardest part for me. I was using chase, but then they started to charge for outgoing ACH trasfers. I ended up going with my local credit union (where I have my HELOC) and it works great. I deposit checks/cash and immediately transfer it to my checking account. It takes like 2 days, but that isn’t bad (there is a $2,500/day limit – so large checks have to be transfered over a few days).

    You really can’t beat earning an extra $1,000ish bucks on money that would have been sitting in your checking account any ways.

  10. Mark says:

    Ally Bank…aka GMAC only exists because they received taxpayer monies. Just last week, it looks like they need another $15B to stay above reserve limits.

    Ally is the reason that FDIC is putting a cap on what banks can offer on FDIC insured instruments. They were offering too high a rate putting additional taxpayer monies at risks without addressing the underlying issues.
    Just keep your accounts below the FDIC limit.

  11. BrianC says:

    I do most of my business through my online bank, but I still find a brick-and-mortar account to be convenient for deposits, etc.

    • daemondust says:

      Agreed. They’re great for a second (or third…) account, but it would be hard to use them as your only bank.

  12. Soccer9040 says:

    I can understand why people prefer the brick & mortar approach to their banking. I have an account with Chase, but it doesnt have any money in it. It just serves as a place for me to deposit checks, write checks against, and a place to complain when they mess something up.

    I’m probably taking advantage of it, but oh well. Money goes right through them on its way to ING, Capital One, PayPal (Used to be a 5.05% money market), wherever.

    • mikestreb says:

      Are you losing money on Paypal’s money market yet? It used to be the best and most convenient ‘online bank’ out there paying out upwards of 5%. Now they are paying 0.08% (you would earn $8 a year on $10,000). That is terrible.

  13. Chris says:

    ING rules. Free transfers in or out to other banks.

  14. B r i says:

    Online banking 100% safe? I don’t think so. Look at the Icesave online banking in the UK.

  15. pcallaghan says:

    I’ll be moving everything to an online bank shortly. My bank, a local one, harleysville national bank has been bought and doesn’t give me any type of interest.

  16. anthonyvogl says:

    I’ve had an online account through ING Direct for about three years now. The interest is small, but it’s easier to save since it takes longer to take money out.

  17. anthonyvogl says:

    One of the reasons I am hesitant to move my checking account to ING is that the ATMs in their networks are mostly located in convenience stores. I’m very cautious about ever using those even if I am reimbursed for the fees as it would seem they would be easier to hack or manipulate.

  18. Julio says:

    I’ve had an online account ever since ING came on the scene, and throughout the years, I’ve chased the best rates through just about every FDIC ensured online bank that has come down the pike, but I have always keep a brick and mortar account for those times you need access to fast cash at an ATM or you need to deposit a check or access to a live person. I think the best solution is diversification and having access to both type of accounts.

  19. jsbrendog says:

    while they may be stronger their interest rate has gotten weaker. Yes, i know it is still higher at ingdirect than brick and mortar banks but to see it go down so steadily is a bit sad.

    other than that ingdirect has been great. I tried to sign up for fnbo before i did ingdirect and their process was a pain so i gave up and went with ing instead. no regrets

  20. lostAnnfound says:

    For checking we are at our local CU (have been for almost 20 years), but I did open up a savings account at ING last year and love it. The automatic savings is a great feature and has really been beneficial for us.

  21. stuarsj says:

    Thanks for the comments everyone. I think I will take a look at ING since many of you have had good experiences.

  22. I can’t say enough about EverBank. They’re product portfolio is nice, and my favorite is their Yield Pledge Money Market Account that is guaranteed to stay in the top 5% of MMAs in the country. This ensures a consistently good yield. While ING has consistently been good with their yields, they don’t make this commitment in writing. I’ve banked with both, but it’s nice to know that EverBank is committed to delivering high yields…in writing.

  23. Daniel says:

    Let’s not forget that there is no need to choose one or the other. Just like a stock portfolio, I believe it’s important to have you “liquid” savings diversified as well – within reason.

    I have three online bank accounts in existence right now – ING, HSBC, and Ally. Because of the fact that I have multiple online accounts, I was able to take advantage of the recent ING Added Value 2.25% CD for new money. I withdrew a bit from my Ally account and opened up an ING cd with it a few weeks ago.

    And on top of those online accounts, I keep a smaller savings account at our local B&M.

    Oh, and I also have $100 in my sock drawer.


  24. daemondust says:

    For me, the biggest draw is actually the delay between initiating a transfer and getting the money at my CU. I have my liquid savings at ING, simply because it can’t spend it without having to go through a several days long process.

    • mikestreb says:

      That is definitely a big issue with online banks or banks no where near you. What pisses me off with this, is I am pretty sure they take the money out right away (they know its there and take it). But, it doesn’t show up and clear your account for 2, 3, 4, 5 days… The banks got their money sooner when Check 21 was passed (back in ’04 I think), but the banks sat on the money and made you wait 3-5 days and earned a TON of interest on it. They had the money but didn’t put it into your account so they could earn the interest on it.

      Another big issue that I don’t think applies to online banks like ING, but more to banks that aren’t close to you. I remember I had WaMu and live in Ohio – There isn’t(wasn’t) a WaMu anywhere in Ohio… I got my debit card and wanted to change the PIN to something more memorable to me, so I called and told them I wanted to change my PIN. They told me ‘no problem. Just go to your local WaMu branch.’ When I told them I lived in Ohio and there weren’t any WaMu’s within like 300 miles, they plain told me tough… So I just had to use what they gave me.

  25. Patrick says:

    Online banks are great and offer much higher savings rates that at most local banks. The biggest problem I have with many of them is that they don’t have a branch to actually go to in order to get your money out. I had a major issue with trying to get my money out where they had locked my account and I was unable to get a hold of the money for a week or so. Other than that situation, I have nothing but good things to say about online banking.

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