In addition to Columbus Day, today is National Online Bank Day. Ally Bank established National Online Bank Day in 2015 to “emphasize the value, ease and convenience of banking with online-only institutions on Columbus Day, a day when most traditional banks are closed.” Ally Bank’s press release that it issued today places extra emphasis on the higher interest rates at online-only banks and how a large percentage of Americans are losing out by keeping their savings in traditional banks. At DA we’ve been regularly reporting on these large differences in rates.
On Friday, I spoke with Diane Morais, president of Consumer and Commercial Banking Products at Ally Bank. In addition to discussing National Online Bank Day, Morais graciously took time to answer several of my questions. I asked about Ally Bank’s rate strategy, and Morais stressed that “Ally Bank aims to be consistently competitive.” They don’t intend to offer the highest rates, but their goal is to offer an “attractive trade-off” between rates and convenience.
I also asked about the trend that we’ve seen in the last year in which large banks are entering the online savings account market. Last week I wrote about PNC’s new online savings account. Last year Union Bank launched PurePoint Financial, and this year Citizens Bank launched Citizens Access. I asked if she sees a future in which all of the major banks will be offering online-only savings accounts. Morais was skeptical about those banks being able to sustain competitive savings account rates. She pointed out Ally Bank’s advantage of not having the expensive branch network. As Ally Bank likes to say, “no branches equals great rates.” Maintaining large branch networks is very costly, and those banks will find it difficult to also offer competitive deposit rates.
Is There a Future for Brick-and-Mortar Bank Branches?
I’ve asked this question many times since I’ve been blogging. Would you feel comfortable banking completely online without having accounts at any local bank or credit union?
In 2012, a DA reader had this to say about this question:
you always going to need a local bank, not only as a point of entry of checks and cash, but at times when your Internet or electric power or your computer is down or malfunctioning. Also, local banks can provide other valuable service like, notary, official checks, as guarantor for signature and many other services.
I think most DA readers probably use both brick-and-mortar banks/credit unions and online-only banks. You can maintain a free checking and/or savings account at a local bank or credit union where you make cash deposits and receive other services like notary and signature guarantees. To maximize the interest, you can keep most of your cash at online-only banks. Will banks and credit unions be able to keep their branch networks if most people start banking this way? Long-time DA reader Kaight had this to say in 2012 about this issue:
I have a local (small) bank and cannot imagine being without my accounts there. At the same time, I give my local bank virtually none of my profitable (for bank or CU) business. I worry that eventually, if others are operating as I do, the local bank will be unable to provide the service they offer me. Their costs are high, their profit, from my transactions with them at least, is quite small . . . if indeed they have any at all.
If you’re worried about your local bank branches, they are probably not going away anytime soon. In 2017, a DA study that analyzed branch data from the FDIC and NCUA found only a slow decline in the number of bank branches in the last ten years.
One thing that might speed up the transition to online-only banking is online banks expanding their product offering. Many online-only banks today still don’t offer checking accounts. The checking account is widely considered as an anchor for a banking relationship. Once a customer opens a checking account, it’s much easier for the bank to cross-sell the customer other products such as credit cards, loans and investments.
Ally Bank first launched its Interest Checking Account in 2010. Since that time Ally Bank has added new products including credit cards, investment services and home loans. With online-only banks like Ally, it is possible to bank completely online without visiting a physical branch.