Online banking itself isn’t new, but neobanking is. A neobank is a tech company that offers online banking services through a partnership with another bank. Such banking services are conducted via a mobile app or website. Some of their offerings include tools to help with saving and budgeting. All through the convenience of your computer or mobile phone, twenty-four hours a day, seven days a week. Examples of neobanks include Chime, Revolut, and GoBank. Some neobanks have higher-yield interest rates, which is useful for building up a savings account and helping to buffer you from debt. Read on to see if a neobank is right for you.
The Pros of Neobanks
Firstly, it’s easy and fast to set up an account – it’s just a couple of simple steps! Once you have an account, you’ll can bank anytime you want from the comfort of your home. Neobanks usually include checking and savings accounts, payment and money transfer services, and financial education tools. Some neobanks also have features such as overdraft protection and sign-up incentives. Making transactions in neobanking is also quicker compared to those of a bank. The apps are also designed with user-friendly and responsive interfaces.
Besides the lower costs, neobanks don’t have minimum balance requirements or monthly fees, which means you can save more money. It’s also easier to apply and get approved for a neobank account if you’ve had accounts closed in the past, since some neobanks don’t check banking histories. If you’ve had a a bank account closed in the past because of financial hardship, a neobank may be a good way for you to get back into online banking.
The Cons of Neobanks
Most neobanks don’t offer services such as loans, mortgages and credit cards. You would likely have to visit a traditional bank instead. If you haven’t done online banking before, the technology can take some time to get used to. There’s also nobody to speak with in person, which can make complex transactions tough if you have questions. Another thing to consider is that neobanks aren’t as regulated as traditional banks. That means if there’s any issues such as fraud or errors, figuring out who’s legally responsible for it could be more confusing. So it’s crucial to pick a neobank that is FDIC-insured and has excellent customer service.
What to Look for in A Neobank
If you find a neobank that looks promising to you, check out the customer reviews first. You’ll get an idea of the quality of factors such as site experience, customer service and interest rates. Afterwards, you should also verify the neobank’s status with the FDIC. The FDIC, (Federal Deposit Insurance Corporation) was created by Congress to supervise and examine banks’ compliance with consumer protection laws. For the safety of your money, a neobank should be affiliated with a bank or credit union. Why? Because banks and credit unions have insurance on deposit accounts up to $250,000.00. So if something happens to your neobank, you can make a claim and get your money back. Inversely, if that neobank wasn’t affiliated with a bank or credit union, you could lose your money on deposit, and there might not be a way to get it back.
For more money & debt advice, please reach out to ACCC’s credit counseling service by calling 800-769-3571.