Easy Finance

In the last few years, I’ve reviewed several online banks from the gray beard ING Direct to the more recent Ally Bank and Sallie Mae. With each review, there invariably are commenters who are totally against online banks and bring up reasons why it’s a mistake to put your money with an online bank.

They cite reason after reason that brick and mortar is better, failing to recognize that the last online bank to fail was Netbank in 2007 (and hundreds of brick and mortar banks have failed since) and that despite all their concerns, online banks are FDIC insured. Well today I’m going to tackle many of these myths head on and show why they are either wrong or grossly exaggerated.

Brick & Mortar Banks are Safer

I touched on this when I mentioned Netbank but all too often people think of brick and mortar banks, with their branches and more traditional feel, as safer. They point to the higher interest rates of online banks and can’t believe they can afford to pay them. I believe that at the core of this argument is the idea that you don’t fix what’s not broken. If my regular bank works and I’m happy earning 0% APY, then why change? OK, I can accept that, but when couched in the argument that the old way is safer, it’s just wrong.

Netbank failed in 2007, not a single penny of deposits was lost, and since then hundreds of banks have failed. All of them were traditional brick and mortar banks. People cite the recent trouble at Ally Bank, how regulators are complaining the bank is offering too high of an interest rate, and to that I say – Federal Deposit Insurance Corporation. Deposits insured up to $250,000. It doesn’t matter what the name on the front of the bank, or the bank’s website, says as long as there’s an FDIC placard.

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