What Is a Neobank?

Neobanks are digital-focused banking providers that typically offer many of the same financial services you could find at a traditional brick-and-mortar bank. Due to their online nature, they may be able to provide more generous terms on banking products.

Whether a neobank is right for you will depend largely on your financial goals and the benefits you’re looking for in a financial institution. Let’s take a closer look at neobanks, their pros and cons, and whether a neobank is a good option for you.

Pros of Neobanks

Potentially Earn and Save More

As online-only banks, neobanks don’t incur the heavy costs of operating physical branch offices. Consequently, they can pass that savings along to customers in the form of valuable financial rewards, including higher annual percentage yields (APYs) on deposit accounts and lower interest rates on loans. Additionally, many neobanks don’t charge monthly account fees or foreign transaction fees.

Convenient Account Management

You can do most—if not all—of your banking online or through a smartphone app with a few clicks, taps, or swipes. Neobanks make it easy to deposit checks, make payments, apply for a loan, and perform many other financial tasks.

Enhanced Customer Service

With a traditional bank or credit union, getting help from a live person can sometimes be challenging, particularly after hours. However, many neobanks offer 24/7 customer support by phone or chat. Neobanks may also beat traditional banks when it comes to adding new apps, budgeting tools, or other technology you can use to help improve your financial health.

Global Banking Benefits

If you frequently travel internationally, you may benefit from a multicurrency account offered by many neobanks. With one account and a linked debit card, you can deposit dollars and convert them to another currency in seconds to pay for goods and services around the world. Conversion fees may be lower with neobanks, and many don’t charge foreign transaction fees, helping you save money on purchases outside of the United States.

Deposits Could Be FDIC-Insured

While neobanks are not themselves licensed or chartered as banks, the deposits they manage could still be covered by Federal Deposit Insurance Corp. (FDIC). Before you open an account, ensure the neobank offers deposit insurance through their partner bank. You can verify whether a neobank offers federal insurance by checking its website or reviewing the account’s terms and conditions. You can also use the FDIC’s BankFind tool to verify if the partner bank is an FDIC member.

Cons of Neobanks

No Physical Branches

It’s relatively easy to manage your account online, but you may want the option to visit a branch and get help in person. Having the ability to ask questions in person can be helpful when dealing with more complex transactions. Live phone or chat help is sufficient for most banking needs, but in-person assistance may save time and effort in some situations.

Limited Access to Cash

Unlike traditional banks that maintain their own ATMs, neobanks typically offer access to partner ATM networks operated by other banks or companies. However, with both traditional banks and neobanks, you could incur a fee if you withdraw cash from an out-of-network ATM, although many neobanks cover this fee.

Potentially Limited Range of Financial Products

Neobanks often dive deep into a few specific benefits instead of spreading wide with a broad array of products and services. As a result, you may not have mortgages, auto loans, and other products commonly found at traditional banks. Similarly, many neobanks don’t provide common banking products and services like notary services, investments, or insurance policies.

Is a Neobank Right for You?

Neobanks are growing in popularity, having amassed millions of account holders in the past few years alone. Neobanks are challenging traditional banks by lowering or eliminating fees and generally providing lower interest rates and higher deposit APYs.

Despite their benefits, neobanks may not be ideal for you, especially if you prefer in-person banking at your local bank or credit union. Along the same lines, opening a neobank account might not be the best option if you view using technology as more of a nuisance than a convenience.

For the best of both worlds, consider using multiple bank accounts, such as a neobank for more favorable yields and interest rates and a traditional brick-and-mortar bank for making cash deposits and banking in-person service.

The Bottom Line

Neobanks could be a great option for many banking customers who would like to get more from their bank. While it might mean losing access to in-person services, other benefits could more than make up for it.

Just as managing your money is critical, so, too, is managing your credit. It’s a good idea to get your Experian credit report and credit score for free at least once annually. Additionally, free credit monitoring can send you alerts to potential identity theft issues and help you track your credit score over time.

Contact O1ne Mortgage for Your Mortgage Needs

At O1ne Mortgage, we understand the importance of finding the right financial solutions for your needs. Whether you’re looking to buy a new home, refinance your existing mortgage, or explore other mortgage options, our team of experts is here to help. Call us today at 213-732-3074 to discuss your mortgage needs and find out how we can assist you in achieving your financial goals.