Happy Day to you. This is Ken Kaufman CFO and I’m thrilled you’re here for episode number 19: Where Should You Bank? And yes, if you hear a car noise in the background, I am recording this from a vehicle while my son is driving. This is my one chance this week to make sure I get this podcast out to everybody.
So I’ve received several questions recently on, “where’s the best place to bank?” I’ve heard some horror stories about really bad experiences with different banks and credit unions. And for some reason, the universe is aligned, and I’ve just heard all of this feedback and all these comments. And I’ve been asked “where is the best place to bank” or “where should I bank?” And so I figured I’d go ahead and take a crack at this in this episode and talk about banking. I want to share my philosophy and my personal experience; and remember that in my job, I work with large banks on a commercial basis (so for middle mid, you know, medium sized companies.) And I’m not going to comment anything on that—this is just personal banking. And so, in preparation for this, I put a poll out on one of the finance Facebook groups I’m a part of, and I asked the question–which do you prefer: to bank at a credit union, to bank at an online only bank, to bank at a brick and mortar bank, or are you using two or more of those options?
And here’s the results that I got: almost 50% said they prefer to bank at a credit union, 21% said they prefer online only banks. Another 20% said they prefer brick and mortar banks. And then the remaining roughly 10% said that they bank at two or more. And I saw a very common comment on those who participated in the survey was that they prefer to use either a brick and mortar bank or credit union for their checking account, but then they use an online only bank for high yield savings account.
Now back in the beginning of 2014, online only banks, they were just gaining momentum as a legitimate banking solution. And prior to this, I had been using a credit union because I had become so frustrated with a lot of the antics (I’ll call it) of the brick and mortar banks–you have to have a certain balance or you get charged a fee, and you get charged fees for all sorts of things. And it just felt to me like the brick and mortar banks were moving further and further away from making life easy and convenient for their customers, and more and more focused on themselves. And so I started to pull away and started to go toward the credit union route. But at the beginning of 2014, online only banks were starting to rise, and I really honestly wanted to try it out and see where it was going. And if this was a trend that was legitimate, and if there were some good options and solutions out there.
And so I was looking for this more convenient, less burdensome process. And I do have, you know, within me, I’m always looking for that–I’m constantly looking at how can I make things easier, how can I iterate my life to a place where I can automate, make things simpler and easier. So the thought of this online banking–coming in and flipping this archaic industry of online only banking on it’s head made me kind of excited. I thought, maybe there’s something to work with here. And if they make it easier for customers to work with them, and then as well, if they don’t have all these branches to support, it seems like these online banks would probably have more to offer their customers in terms of convenience and no fees and lots of other things that traditional brick and mortar banks just could not.
So I also thought this: even though banking has been established as this retail experience in the past, why does it actually have to be so brick and mortar retail based? I mean, Amazon is in the process of completely overhauling and changing the landscape of retail and commercial real estate as we know it.
And so I was wondering back in 2014, is that possible that these online only banks are becoming the Amazon of the banking industry, where you can get exactly what you need all online, delivered, (quote, unquote,) at your doorstep? So I decided to give online banks a try. I did a bunch of research, I read about the pros and cons of online only banks, read reviews from customers, and here are the common themes that I heard: the checking and savings accounts generally didn’t have any fees unless you overdraft it. There were no minimum balances, you didn’t have to jump through a bunch of hoops with other things you have to do to try to avoid fees.
At the time, brick and mortar banks, it was common that if you opened a savings account–and the way you got a free checking account was to open a savings account and set up a monthly transfer from one to the other, and that’s how you got your free checking account. So again, didn’t see any of these antics. And like I said, there’s generally no fees. The savings accounts obviously do because there’s a limit, I think it’s under reg D that requires if you do more than six transfers, then you get charged a fee or it doesn’t let you do that. So there are some rules that everybody has to play by, but I saw a really clean no fee platform. Also online banks, they generally make their websites and their apps really easy to use. And back in 2014, it was amazing how archaic the big banks were when it came to online access and apps versus these online banks. They had really nice user interfaces, and they’ve only improved from there.
The other thing is, all of the online banks were leveraging the existing ATM networks that exist out there in the universe. And some of them have their own networks where you had to go to those ATMs and not be charged a fee. And others said, Hey, just go to any team ATM you want and we’ll reimburse whatever your ATM fees are. Now, it’s not a big deal for me, I’ve never really used the ATM much or, actually generally try to not use cash at all, and I try to avoid that. So I may go to an ATM a few times a year total. So not a big deal. But it is nice to know, go to an ATM and take care of that.
Making deposits of cash is really the biggest limitation I could find when it came to online banking. Because you can’t put that cash in the envelope and mail it–for fear, you know that it might be stolen. There are so few options out there today to try to solve for that, but generally this is still a weakness of online only banks.
The other thing is online banks with checking accounts–they actually often pay some interest. And that is just not the case when it comes to brick and mortar, and even a lot of credit union banks.
So my experience here was, I decided to go ahead and try out the two top online banks that I could find there. It was about the first quarter of 2014. One was Capital One 360, and the other was Ally Bank. I actually liked Capital One 360 better, their user interface, there was also a $25 signup bonus. And so I said, I went ahead and went with that–I went all in. So I’m moving everything from the credit union, and everything is going to happen through Capital One 360. And then I just had the Ally Bank. I put a few hundred dollars in there, I think, just to kind of try it out and see what it was like. Well, I was with Capital One 360. And I was faithful to them for quite a period of time.
And then there’s one thing that I grew frustrated with, and it was that they technically did not allow their customers to initiate a wire from their bank to another financial institution. And when I called and asked (at the time, we were getting ready to buy a home, and I called to clarify how it all would work,) and they said yeah, generally we will grant access, or we will approve a customer to do a wire, but we cannot do it until you submit the wire. I said, so I’m going to buy a house and the bank is counting on me, or the title companies’ counting on me wiring them the money so that I can buy this house and close on time, but you’re telling me that you can’t promise me that you’ll process the wire when I send it to you. It was just the most ridiculous conversation–I got frustrated with that.
And I started experimenting more and more with Ally Bank and realized you can submit wires online; you can do as many as you want. There is a fee to do it. They will then call you and confirm information to make sure that it’s you that submitted the wire so that there wouldn’t be any you know, fraudulent things happening. And so I ended up moving from Capital One 360 over to Ally Bank and I’ve been there ever since, and I recommend everybody to go there–anybody who asked me– and I don’t get paid anything, I’m not affiliated or connected to Ally Bank at all. But it is so easy to bank with them. Free debit card, free checks (however many you need,) all of those things that make life very, very easy.
So as you can tell, I’ve become a huge fan of online only banks. The checking account pays interest, (the savings account at Ally bank is consistently on one of the hot on the best and favorite lists in terms of highest yields are interest rates, although that is getting a little bit more competitive in the last few months. We’ve seen some new high yield savings accounts start to pop up at wealth front. And there are others who are trying to compete with some affiliate banking things and it will just be interesting to see what happens with that trend.)
But if you come to me and you ask “Where should I bank?” I would tell you: you go online only. I’ve had a great experience at Ally Bank and I would highly recommend them; we do still have a credit union account. It’s the account that my wife had when she first got her very first (quote unquote) bank account. And so that’s still out there, but we don’t ever use it. For my consulting business, I do have an account at that credit union also for the business. It is hard with online only banks for them to get business accounts going–Capital One 360 has kind of got some things happening, but you do actually have to have a brick and mortar bank or credit union in order to even get an account with them and make that work.
So again, I’ve completely moved away from traditional commercial retail banking. Online only banks is the only way to go, in my estimation: better interest rates than you’ll find at credit credit unions or brick and mortar and tons and tons of amazing flexibility.
So there it is: where should you bank? Online only banks (and I would recommend Ally Bank, had a great experience there. But there’s lots of great ones. I’m not saying that that’s the only one that you should consider or think about. It’s just the one that’s worked out best for me. I don’t know your situation and so obviously can’t make that full recommendation.)
Make sure to subscribe to the podcast so you don’t miss future episodes. I appreciate you participating. Many many thanks for joining today. This is a wrap for Episode 19. Happy Day.
Transcribed by https://otter.ai