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All Your Answers To “What Is A Neobank?”

Written by Kimberly Linhares

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October 5, 2021

Your answers to “What is a neobank?” will cover everything you need to know in this blog. Neobanks are specifically online institutions that offer bank-like services. Since they have no physical branches to maintain, they may offer customers lower fees and higher interest-earning rates. But the exchange may have fewer products and less regulatory oversight. If you’ve ever used your financial institutions online banking tools, you’ll already have an idea of how neobanks work…even if you don’t know exactly what they are. Let’s look at some information to help you understand everything about “What is a neobank?” to “Is neobanking right for me?”

What Is A Neobank

What Is A Neobank?

Although “bank” is in the name, and they offer bank-like services, neobanks technically aren’t banks. Instead, they’re financial technology companies that partner with traditional banks to put their own brand name on savings and checking accounts. These partnerships allow the neobank to provide customers with payment cards, investment services and FDIC insurance on their deposit accounts. Neobanks have no physical branches and typically aim to serve people that many traditional banks historically haven’t, such as people with little or poor credit history.

What Does Neobank Mean?

A neobank is basically a digital bank without any physical branches. It is entirely online without being present at any specific location.

What Is Neo Banking?

Neobanks operate entirely online and offer bank-like products and services that you access through an app on your phone or computer. But while you may be able to make payments from or save money in a neobank account, neobanks aren’t really banks. While the convenience and innovation of a neobank may appeal to you, it’s important to understand how these financial institutions generally work before you begin doing business with one. 

How Is A Neobank Different From A Traditional Bank?

Neobanks and traditional banks differ in several ways. The most obvious difference is that neobanks don’t have a physical presence. With a traditional bank, you can go into your local branch to deposit a check and take money out of your account. But with a neobank, you do everything from your phone or computer. With less overhead, neobanks often are able to offer higher interest rates and lower fees. Neobanks are more likely to introduce innovative, forward-looking features like fronting you the money from your upcoming paycheck a few days early. But they might not offer the full slate of financial services you’d expect from a traditional bank.

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What Are Some Advantages Of Opening An Account With A Neobank?

Neobanks have several strengths. They often have higher interest-earning rates and lower fees than traditional banks. Unlike banks that have to spend resources keeping their branches open, neobanks don’t have such overhead and can focus resources on offering you innovative financial products instead. Tech-savvy customers might also appreciate that neobanks are more convenient and easier to use because you can do all your banking online, without going into the bank. And you may find that a neobank is more likely to have services and features tailored to your needs and preferences.

What Are Some Disadvantages Of Neobanks?

On the other hand, neobanks might offer fewer financial products than traditional banks. So when you need an auto loan or a mortgage, your neobank isn’t likely to have those products, and you’ll have to deal with a traditional bank or credit union. Like mentioned before, neobanks don’t offer branches. So if you enjoy going into your local bank, or have a complex question that you’d like a human to answer, you won’t be able to have in-person interactions with your neobank. If you’re not tech-savvy, you also might feel overwhelmed trying to do all your banking online.

Is My Money Safe With A Neobank?

You might wonder if neobanks are safe. After all, how can you trust a bank you can’t set foot in? As fintech companies, neobanks might be regulated differently than the banks they partner with. But they’re still subject to general business and consumer compliance laws.

Just make sure to learn about how your neobank partners with a traditional bank to offer FDIC insurance. Typically, neobanks partner with traditional banks to provide you with up to $250,000 per account in FDIC coverage. FDIC insurance means that even if the bank were to go out of business, the government would reimburse you for your losses up to the coverage limit. You also might be concerned about online security. But many neobanks use the same security protocols that traditional banks use to protect your money. Be sure to look for security and safety information on a neobank’s website before opening an account with it.

Is A Neobank Right For You?

Before you open a new account with any bank, it’s important to do your research. It is recommended that you take a look at what other customers say about the bank, and see if it’s facing any legal action. It can also be helpful to verify its status with the FDIC. If you want to double check that the bank actually offers FDIC insurance and isn’t making a fraudulent claim, you can search the government website to find the bank’s name on the list of covered banks. Keep in mind that if you’re dealing with a neobank, the name of its partner bank might be listed by the FDIC instead, so it’s a good idea to search for it under both names.

Hope this blog has answered all your questions to “What is a neobank?”. But remember a neobank might be right for you if you’re comfortable banking from your phone and are excited about earning higher interest rates. But if you get flustered by technology or prefer to physically step into your bank, you might have a better experience with a traditional bank. 

PS: If there’s anything more you’d like us to know about. Add it to the comments section!

Thank you for reading this blog on ‘All Your Answers To “What Is A Neobank?” ’ If you’d like to read more, here are some blogs that might be of interest to you:

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