Easy account registrations, no monthly fees, and high savings rates? Neobanks like Chime and Current offer these features, while many traditional banks do not.
Neobanks are fintech companies that often partner with banks to offer digital-only accounts. They’ve been around for just over a decade, but they’re gaining ground.
Roughly 1 in 3 Americans has a relationship with a neobank, according to a 2022 annual report from banking advisory firm Javelin Strategy & Research. Yet only 26% of neobank users open an account to replace their primary bank, and 90% of that same group use one of the 20 largest banks as their primary bank, according to senior analyst Dylan Lerner.
If you’re considering a neobank as a primary or additional place to manage your money, educate yourself beforehand about its limits and risks and answer these five questions.
1. Do you mind if it’s not a bank?
Neobanks, in general, are not banks themselves. And they don’t have to be to protect your money. Most neobanks partner with banks licensed to offer deposit accounts insured through the Federal Deposit Insurance Corporation. FDIC insurance guarantees that we will pay you back, up to $250,000, if the bank or company fails.
People are also reading…
Many neobanks also offer debit cards that belong to the Visa or Mastercard payment network. Both have robust protections in case someone makes an unauthorized charge to a card.
Tip: Reverify the partner bank of the neobank. A neobank discloses this on its website or mobile app. Then verify that the bank is real using the FDIC data. Bank search tool. In rare cases, a neobank is a licensed bank, such as Green Dot’s Varo Bank and GO2bank, although its mobile-centric account offerings are more similar to those of other neobanks than traditional banks.
2. Can you bank primarily on a mobile app?
A mobile app is at the core of the neobank experience, where you can make transfers, pay bills, view transactions, receive direct deposits, and more. A neobank with a checking or equivalent account usually sends a debit card, but with no branches, cash and check services are limited or unavailable.
By offering an “easy and affordable” banking experience, “you should also expect some trade-offs.” [in] functionality,” says Lerner. Neobanks typically lack some traditional banking services, such as wire transfers, cashier’s checks and joint accounts.
A neobank won’t offer physical checkbooks, but it might deliver checks. However, neobank mobile check deposit services, if available, may not accept checks above certain dollar amounts. Some providers will let you add cash to an account at various retailers like CVS and Walgreens, but for a fee. And while many neobanks offer free access to a network of third-party ATMs for cash withdrawals, those ATMs can be hard to spot since they don’t have a neobank branding.
Tip: See how a neobank handles cash, checks, or other services you may need by checking their FAQs or contacting customer service.
3. What customer service channels do you have?
A neobank may offer help via a phone line or live chat service, and if so, check the hours and days of operation. For non-urgent questions, try searching a neobank’s FAQ or send an email.
One of the biggest jumps from a traditional bank to a neobank is the lack of branches. About 83% of US households spoke with a bank teller or other branch staff within a year, according to a 2019 FDIC survey. The pandemic accelerated the trend of more people using the digital banking, but a branch can provide a personal touch when a complicated problem arises.
Tip: Check out Twitter as another place where businesses can respond to customers.
4. How would this neobank improve your banking?
As technology companies, neobanks want to provide a better experience for an existing product: bank accounts, in this case. Some neobanks may have a core mission that appeals to a specific community, such as African Americans or people with disabilities. And most neobanks develop features that traditional banks typically don’t have.
“[The] The fintech space with its ability to be more innovative and agile has found some niches in the kinds of consumer needs that larger institutions don’t address, says Marisa Walster, vice president of financial services solutions at Financial Health Network.
Neobanks like Chime and Varo have up to two-day advance direct deposits, which can ease cash-flow concerns for some people. And many don’t charge overdraft fees if balances go negative. The big banks have started waiving such fees, and at least one has started offering early direct deposit, years after the neobanks had them.
But neobanks typically don’t offer all the types of loans or accounts that a bank does, and companies can change over time. Fees can be added, and some neobanks even go out of business. For example, the German-based neobank N26 closed its US operations after two years.
Tip: Consider the general advantages and disadvantages of neobanks compared to traditional banks. More information on how choose where to deposit.
5. What do customers say about the neobank?
Look for patterns of good and bad in user reviews. Check the average mobile app ratings on the iOS or Android store as well as various review websites. Are there delays in contacting someone? Does the app have bugs? Consider recent revisions as useful data points within reason, as you don’t know how common some scenarios might be.
“Investigate complaints to see if other consumers have had…problems and how they were resolved,” says Marisabel Torres, director of California policy at the Center for Responsible Lending. A helpful resource might be the Consumer Financial Protection Bureau complaints database for the most popular neobanks or parent companies.
Tip: Keep an eye on how a neobank resolves fraud claims. Having easy sign-up processes can lead to easier identity theft attempts, according to a 2019 report from the National Consumer Law Center. And finally, knowing what to do if a neobank close your account. Neobanks promise to make digital banking easy, but they can’t offer everything.
Chime says: Chime is a fintech company, not a bank. Banking services provided and debit cards issued by The Bancorp Bank or Stride Bank, NA; FDIC members. Cash withdrawal and third party fees may apply. Early access to direct deposit funds depends on the payer.