Digital banks are among the latest financial trends sweeping the nation. With a digital bank, there are no buildings or places where you can speak in person with a representative. While some consider this a drawback, it depends on your preferences when it comes to banking. Overall, the cost of digital banking is much less than traditional banks, making interest rates slightly better since there’s no overhead. Here’s how digital banks save you money.
No ATMs to Maintain
ATMs can be costly as far as maintenance and usage fees, not counting the need for an armed escort to remove or deposit cash into remote terminals. Traditional banks usually bear the cost of these expenses, adding another item to the extensive list of costs that traditional banks must bear.
A digital bank usually couples with national ATM partners to provide its users with terminals from which to withdraw (or deposit if the machine allows) money. This eliminates the need for these banks to pay maintenance costs or cash transport fees with armored car services.
These savings are usually translated into better interest rates for digital banks’ customers. The less expensive the banking process is, the better rates the bank can offer. Digital banks normally have better rates overall than traditional ones.
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No Costly Overhead
With traditional banks comes all the cost associated with running and maintaining a business in a physical location. Not only does the branch have to be staffed with security, personal bankers, and tellers, but the building has to be purchased or rented, the utilities must be paid, and facilities maintained.
These expenses can make running a traditional bank an extremely expensive endeavor, and so to make up for those costs, banks drive up interest rates and fees. The concept is the same with any business; the higher the overhead, the more expensive the products or services will be.
By significantly reducing overhead costs, digital banks are able to offer lower fees and better interest rates. There will still be staffing costs (after all, you’ll need to talk to someone eventually) as well as call center maintenance costs, though these expenses are much less costly when compared to traditional banking costs.
Better Interest Rates Means More of Your Money in Your Pocket
Loans, savings accounts, and credit cards all operate on interest. If you’ve ever gotten a car, home, or other loan or line of credit, you were probably charged somewhere between 10-25% interest. This can make the cost of your borrowed funds skyrocket, especially with credit cards.
Your interest rate does depend on your credit score as well as other credit factors but make no mistake, the cost of the bank’s overhead has an impact on this as well. Charging interest on loans is how banks make their money. You’ll end up paying back the principal plus whatever interest was charged, so a bank can easily make a few thousand dollars extra from a car or home loan.
Savings accounts also carry an interest rate, allowing you to earn some extra money while putting away a percentage of your income. Your rainy day fund can earn greater profits if you choose to use a digital bank. Superior interest rates will increase the value of your savings, earning you money every year on the balance.
Time Equals Money
The less time you spend on banking, the more efficient your finances will be. The old term “time is money” is absolutely true, especially when you’re standing in line at your traditional bank waiting on a deposit or withdrawal.
With digital banks, there are no lines. Your information is stored securely within an online portal, from which you can access your accounts, transfer funds, and even pay bills. Don’t waste any more time standing in line or waiting on approvals with a traditional bank.
Less Paper = Less Waste
One of the most prevalent items in landfills is actually paper waste. This accounts for a large percentage of business expenses in the US, and we all know just how much paper can be involved with the traditional banking process.
From paper statements to loan agreements and those “terms of service” packets that come with new accounts, banks spend millions every year on paper and ink. These papers, if not filed away, will likely end up in the trash, making the cost of the ink and paper even higher for the banks.
As we mentioned, when costs go up, so do your rates. Digital banks provide your information electronically, though can certainly opt to receive paper statements or other information on printer paper.
No Monthly Fees
Some banks will charge a monthly service fee if your account falls below a certain amount during your monthly statement period. This can be frustrating, as those fees can add up over months and begin taking a real toll on your accounts.
Digital banks don’t usually charge these fees, saving you even more money by eliminating one more expense associated with traditional banking.
Digital banking is an up and coming trend in the financial world, with online savings accounts earning their users significantly more in terms of interest payments. Why use a traditional bank that offers either no interest on savings accounts or less than 1%?
Overall, digital banking is a more convenient and affordable option for managing your money, as long as you don’t mind the lack of a building you can actually walk into. You’ll still receive customer service via phone and email so experts will be able to answer questions about your accounts or services.