Monday, 11 November 2019

Neobanks, digital banks without bricks-and-mortar branches, offer many worthwhile features. While they may not make sense for everyone, they often work well for those who want or need a different banking option.

Why should you choose a neobank?

Neobanks, which reach consumers through streamlined smartphone apps and websites, offer no- or low-fee accounts and some have no overdraft charges. Traditional banks, in contrast, often impose overdraft charges, among other fees that can make accounts more costly.

Many neobanks also offer savings-account interest rates far higher than the average.

Lower costs and higher interest rates, while a draw, aren't the only selling points. Neobanks — a class of "fintech" startups — also offer tools to help people manage their budgets, savings and spending in real time.

Simple, a neobank that BBVA acquired, uses a "safe to spend" tool designed to keep customers on track and within budget.

Neobank customers also can transfer money, link to outside accounts and to services like PayPal and Venmo, receive direct deposits, and use debit cards for free through broad ATM networks.

What about security?

Consumers might wonder if these virtual banks are as secure as standard banks. While many neobanks lack their own state or federal charters, they often partner with or operate as part of a regulated bank. That way they can offer customers' funds the same Federal Deposit Insurance Corp. (FDIC) protection. For example, BBVA purchased neobank Simple more than five years ago.  BBVA, as an FDIC-insured bank, holds Simple customers' funds, while Simple handles its own mobile app and features designed to help track spending, saving and goals.

If you're considering opening a neobank account, check to make sure your money will be FDIC-insured.

Despite their merits, neobanks may not be the right choice for those who prefer to do business at a bank with physical branches, where they can speak face-to-face with a teller or manager. Those not used to handling their money through a smartphone also might pause before taking that step.

While some neobanks allow patrons to make cash deposits at certain retail outlets, most transactions occur online or through the app.

Some consumers also may require more services than they can find at a neobank. These newer banks don't all offer a comprehensive set of services, including loans, that consumers find at traditional banks — although that may change.

Before choosing a neobank, think about your needs and research the options.

If you're looking to save on checking fees, earn a higher interest rate, conduct your banking through an app, and benefit from financial tools, a neobank could be an ideal choice.

The content provided is for informational purposes only. Neither BBVA USA, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial consultant about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA USA or any of its affiliates.

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