All of the Federal Reserve’s interest rate hikes in 2022 have resulted in a substantial increase in deposit account rates, including those for savings, certificates of deposit, and money market accounts, primarily at online banks.
While some digital-only financial institutions provide high-yield savings accounts with rates of 4% and higher, traditional banks such as Wells Fargo and Bank of America continue to give insignificant yields of 0.01% to 0.25%.
For investors who prefer a small but consistent return on their money, it is difficult to overlook the high rates offered by online-only banks, which may also provide innovative features such as early paycheck access and minimal costs.
If you cannot recall the last time you visited your bank, it may be financially beneficial to switch to an online bank with no fees and higher interest rates. But before jumping in, consider the following five questions.
Real Banks
With the exception of Varo, although many neobanks offer savings and checking accounts, debit cards, and other typical banking services, they are not always nationally chartered banks with the appropriate licensing. Instead, they are financial technology businesses that provide less bank-like services.
Since neobanks are not regulated in the same way as licensed banks, this might be a red flag. For consumers, it is crucial to determine whether the neobank is backed by a genuine bank or banking partner.
In the event that the neobank fails, the federal government will insure your account for up to $250,000 if it is covered by the Federal Deposit Insurance Corporation.
On the About us sections, you may typically discover the We are not a bank disclosure, as well as the legal bank partners of the neobank.
Read more: Social Security 2023: You should have received an 8.7% increase today!
Digital Hiccup
This year, Chime gained attention for its comparatively high percentage of customer complaints. According to a July ProPublica study, researchers discovered that Chime encountered outages in the past that purportedly left users financially stranded.
Since April 2020, it has also received 920 complaints filed with the Consumer Protection Bureau regarding closed accounts. Chime had approximately 12 million customers at the time.
Wells Fargo, which has its own set of troubles, received only a third as many complaints regarding closed account concerns while having six times as many clients.
Creating your own backup plan, such as saving emergency funds in a separate bank account, might be useful in the event of unexpected difficulties.
