Online-only banks pay higher interest rates, but consumers are still reluctant

An estimated 96 million Americans have never switched banks, according to a report by DepositAccounts.com, suggesting customers are local to a fault — especially considering the higher savings interest rates online-only banks are paying.

Nearly 33% of U.S. banking customers say they won’t consider opening online savings accounts, and of that group, 38% say it is because they are satisfied with their current bank accounts.

While online-only banks, with little overhead, are paying savings account interest rates two to four times as much as traditional banks, the average is still around 2%, according to monthly tracking data from Bankrate.

Another reason some consumers aren’t making the jump to online-only banks is that they may only have a few thousand dollars to save, so it doesn’t make much difference.

“For those who don’t have a lot of money, of course, interest rates are not as important,” DepositAccounts.com’s Ken Tumin told WTOP.

“So if at their current bank, they are not earning much interest, but they’re not being hit with fees at their current bank, they might not have the motivation to consider online banks,” he said.

Another 18% of those surveyed say they don’t feel online-only savings accounts are trustworthy. But Tumin suggests that is misguided.

“All of the online banks are FDIC insured just like all the brick-and-mortar banks,” Tumin said.

“They have to follow the same regulations. So if a hacker accesses their account and fraudulently makes a transfer from their account, they have the same regulations that protect consumers at online-only banks as they do at brick-and-mortar banks.”

Even in the online world, some people still just prefer a face-to-face relationship with their banks, with 24% saying they prefer having the option to bank in person.

DepositAccounts.com estimates Americans who aren’t actively looking for better savings rates at other banks, be it traditional or online-only, are leaving a collective $42 billion in interest income on the table every year.

While nearly 40% of those with bank accounts have never switched banks, the majority of Americans have done so at least once in their banking lives, and the older one is, the more likely they are to have switched banks.

Results from DepositAccounts.com’s survey, and its methodology, are posted online.

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