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Federal Reserve, the Economy and CD Rate Forecast - Oct 25, 2022National Online Bank Day - Do We Still Need Bank Branches?
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.
I guess you are special.
Getting money to them is a bit of work and loss of time--and requires monitoring until completed
--wire transfers to them is costly
--ach is time consuming and wastes earning time at both ends
I would recommend that ALLY (and similar on line banks) provide transfers of deposits and withdrawals via PAY PAL or perhaps other mobile apps--GOAL-TO ACHIEVE INSTANT TRANSFERS--press a button and they have the money--press a button and you have the money--press a button and money goes to someone else--with security in the system, then checks become obsolete--end of branches
By the way, the branch banks charge fees for everything--notary service, third party check handling, safe deposit box, wire fees, inactivity fees , dormancy, out of institute debit card use, ...If that's a branch banks business model, then they should join Matress Firm --they will be out of touch
Some third-party like Paypal having access to my funds.
What's the law with regards to Regulation E with regards to Paypal?.
If you look at their user agreement, there's no mention of that.
Sometimes, it's better if transfers aren't "instant".
I would not want instant transfers that are not secure
Your comment is highly appreciated.
I retract my comments related to using PAYPAL in concert with ALLY--that was careless.
Thank you for your insightful and direct retort.
The Electronic Fund Transfer Act, implemented by Regulation E, does not adequately protect consumers using these alternative payment services. Regulation E is insufficiently specific and provides circular language in its key definitions, including those for the terms “financial institution” and “account.” These deficiencies could leave consumers engaged with alternative payment services in the unique position of facing unlimited liability for losses resulting from unauthorized electronic fund transfers from their alternative payment service account.
I might have $3-12 total in there at any one time.
Once, I went to my nephews basketball game and did not think about having cash.
I only had $3. And he would not accept a credit card.
His dad came to the rescue a few minutes later.
I tip my Great Clips hair cutter with cash. Speaking of them, $6.99 haircuts this week. I am going in a few minutes.
If the consumer can not see any benefits, Online banks are there by name only or just to be called Online only banks.
https://www.reuters.com/article/us-venezuela-economy/venezuelas-annual-inflation-hits-488865-percent-in-september-congress-idUSKCN1MI1Y6
I am a member of 2 local credit unions and I have used shared branches a number of times.
If I were recommending a single online bank to someone who has never used one, it would be Ally.
Despite not having top rates.
While they do not offer the top rate, their website is easy and they have 24 hour customer service by chat or phone. Probably the best combination of overall services. And their savings rates are reasonably competitive.
Returned deposit item $7.50
Overdraft item paid or overdraft item returned (maximum 1 fee per day) $25.00
Excessive transaction(s) fee $10.00 per transaction
Expedited delivery $15.00
Outgoing wires (domestic only) $20.00
Account research fee $25.00 per hour
If you do not pay expedited delivery for check, it will be delayed in their office for 10 days or if they mess up your account they will charge you $25 to rectify their own created problem.
I have to assume that anyone opening an online bank account would be smart enough to avoid any of those fees. It's really not that hard.
And,I got one excessive transaction fee by mistake and they reversed it for me. I suspect they would waive a $7.50-10.00 fee for anyone. At least once.
What do Chase, WF or BOA pay in interest?
.01, .01 and .03% and they have monthly fees of $5 unless you keep $300-500 in the account.
Perhaps you could explain yourself. Or will you run & hide?
I'm sure I missed few more B&M conveniences, but you get the picture, I lost my Ally credit card and had to wait 2 weeks for replacement, but I walked in TDbank and got new card in 2 minutes. Be careful what you propagate to others, online banks have advantages and big disadvantages too.
My CUs do free notary and free certified checks and free ATMs all over town.
Why would you have an ally credit card? It's a laggard. But when my fidelity visa was compromised, they send one by 2 day UPS without me asking.
2.2% on grocery stores and gas stations? I get 3% and about 4.5% elsewhere.
Maybe one of these years I will need a b&m bank, but I doubt it. Would they shun me because I was not a prior customer if I did walk in off the street for a loan? "Im sorry sir, your 828 credit score is just not enough for us." "But if you had an account here, a 700 would be fine."
I don't have a local business but I can deposit cash at any shared branch CU for free.
And if you read my posts above, I said " If I were recommending a single online bank to someone who has never used one, it would be Ally".
And one CAN have both if you insist.
By all means, if you want your b&m bank, keep it. If someone is at this site, you would think they are interested in more than .05%.
I can't think of a single real world situation for me that my combination of local CUs and online banks cannot handle. Yeah, maybe if someone offered me a $50k car for $30k. I can only get my hands on $25k the same day locally. (excluding sunday)
The chances of that happening are zero anyway.
I make it a point to walk into the branch, and not use the drive through, so my face is known to the bank employees. I barely need to show ID, if at all, when making large withdrawals or sign paperwork, making transactions fast and smooth. Can't do that online. But personal accounts are all online. BTW, Chase just closed my local branch.where I had an account.
Plus people advocating there is no need for brick and mortar banks and too narrowly focused. There is a huge population of elderly people here in the U.S. who are not internet savvy. Also there is less chance of being scammed when doing business face to face with the same people you deal with on a regular basis.
I think banks are going to continue to close branches, not as fast as retail, but they are nearly all downsizing. There was one not 3 miles from my house that shuttered up & closed one weekend.BB&T. They were taking the signs down on a friday afternoon.
Another one about 3 miles in another direction closed a few years ago. Wells Fargo. A Regions closed over there about 5 years ago.
I am surprised they are not closing more.
Why limit the elderly and people who prefer not to do their financial business over the internet to CUs only and not banks? The more options the better, just as "rate chasers" here prefer?
Heard a radio ad today about capital one cafe. Closest location is 350 miles away.
Must have been a syndicated radio program I guess?
I don't think that has happened with any other bank or CU for me.
Purepoint will link immediately to some institutions if you log in through their portal
About 33 years ago, I ran a restaurant and we made large cash deposits every night. We had locked bags and they always had TWO employees open the bags & count the money.
We kept coming up $100 short on several deposits. You think its your error because the bank has 2 people counting it. Except it was not our fault and the bank had 2 people in on it.
And when they figured it out, they refunded the $400.
I know of another instance where a guy made a cash deposit at a night drop and they insisted they never got it.
Because of those, I never deposit cash in ATMs or night drops. Its rare but it happens.