I am a fan of online banking. Online banks operate with fewer costs, principally because they do not have to operate a branch network to service their accounts. Online institutions pass on those savings in the form of lower fees (or no fees), better interest rates on savings, and high-tech features. Online banks were the first to offer remote deposit of checks by smartphone. Today, they offer some of the highest rates on savings accounts anywhere.
Bank accounts form the foundation on which people build their financial structure. It is only the beginning step that usually leads to the selection of insurances, a savings account, perhaps a retirement plan, lines of credit, and maybe even a mortgage. It is essential to get it right.
On the other hand, it is equally valid to choose how you manage your money on a product-by-product basis. It is not rational to select your mortgage lender simply because you already have a checking account at the same institution. The banks have not earned that loyalty. If better options exist online, then consumers should walk away from the branch option.
Banks and credit unions (“financial institutions”) need specific information to review an application. In most cases, the necessary inputs differ little from one financial institution to next.
Here are the typical steps:
1. Select an account. If you already know the account you want, then you can go directly to its website. If you're going to compare fees and features first, you would be well-served to go to a site such as WiseWage https://www.wisewage.org or NerdWallet, www.nerdwallet.com where you can evaluate the merits of a set of different accounts.
2. Once you have selected a bank or credit union account, go to the site and click “open account.”
3. The bank may take the step of providing disclosures about the account in question. Those disclosures may be highlighted or listed item-by-item inside a form. Since there are lawyers involved, expect that language to use words like “may” or “should,” to underscore that you “may” pay an ATM out-of-network fee or that you “should” receive an online statement.
4. Tell the bank about yourself. Are you an existing customer of this bank? If so, you can log in and skip the process of providing your personally-identifying information. If not, go to the next step:
5. Provide your full name, your mailing address, your social security number (or ITIN), and your date of birth. The financial institution needs this information to comply with federal law. Many people work tirelessly to steal identities; many fraudsters like to use stolen info to open accounts in the name of other people. The application process has these questions so that your bank or credit union can verify that you are the person who you say you are.
6. Tell the bank how it can communicate with you offline. You will need an email address and a phone. Either of these modes may be used to send a confirmation message during the signup process. At this point, your institution may send you a confirmation code as a security precaution.
7. Create a username, password, and answer the various security questions. Sometimes, you may be asked to predict how you will use the account in the future. For example, Varo asks how many times a month, you expect to receive funds electronically. They do this as another way of guarding your account. If you say you plan to make one to three electronic deposits in any given month, but Varo Money notices that you have received 100 deposits, they will have grounds to flag your account.
8. The financial institution may ask additional security questions. You might need to identify addresses where you previously resided, other banks where you already have an account, or perhaps the make and model of your car. Banks subscribe to services that collect this information. They can match these kinds of data points to known unique identifiers (social security number, date of birth) as one more step of verification. I know of one entity that asks applicants to verify the eye color listed on the applicant’s driver’s license.
9. Choose your account preferences. You may have the option to choose paper statements versus receiving statements via a pdf inside an email. Many online banks will not provide a paper statement. Some will, but only for a fee. Others will mail a paper statement for free upon request. Generally, the benefits of online checking come at a price – receiving a free paper statement is one such example. You may ask to receive paper checks. On the other hand, many banks no longer provide checks.
10. Decide about overdraft: If the account has an overdraft capability, the FI will ask for your permission to “opt-in.” The opt-in rules apply to overages that occur during PIN debit and ATM transactions. Everyone should understand that even if you do not “opt-in” to overdraft, you can still pay an overdraft fee. Typically, an overdraft on an account without an opt-in permission occurs as the result of a bounced check.
11. Establish an initial opening deposit. Many banks require a deposit as a condition for account approval. At most of the big banks, you must provide a deposit when you open the account. Ally Bank, Wells Fargo has a $25 minimum as a condition of approval to open a new account. You will need $50 to open BB&T’s Fundamentals or Bright Banking checking accounts. Bank of America requires an initial deposit of $100 to open its Bank of America Advantage Plus Banking account. On the other hand, Citibank does not have a minimum deposit requirement. Varo and Empower, both featured on WiseWage, are the same. Neither asks for an opening deposit. That is not to say that you cannot do so. Yes, any bank would prefer to have deposits. In spite of that, some banks are willing to process an application and mail a debit card even if there is no promise of a deposit at that time.
12. Accept the various terms and conditions of the account. Your bank will ask you for your approval of specific account rules. As well, it will ask you to acknowledge that you have been given notice of your rights under the Electronic Funds Transfer Act and potentially the Wire Funds Transfer Act.
The bank (or credit union) will run your application through a variety of screening algorithms. Sometimes, banks turn down applicants who are listed on a bad-credit registry such as ChexSystems. Often, the reason for rejection is temporary. I see many instances where a bank rejects an application because a person only recently relocated to a new address. That creates a security flag on an account. Rest assured, with a bit of time; these things can work themselves out.
If accepted, you will consent to receive a debit card in the mail.
At this point, you can set up to have funds direct deposited to your account. Most banks will provide a routing and account number at this moment. The Empower account includes a service that will allow a new applicant to email his or her account number and the corresponding bank’s routing number from inside the app.
The process is roughly the same for accounts that must be opened with a smartphone. All of the same details apply except you will be taken from a web page to the AppStore or Google Play service. You will be asked to download an app. After that, everything is mostly the same: you still fill out the same information, answer security questions, and create your necessary sign-on permissions.