Why It Pays to “Discover” Online Banking
For the longest time, banking to me seemed like mostly a practice in making the best of a bad situation. After all, how many people actively discuss what they enjoy about their bank? Instead, it’s mostly complaints about rising fees and buggy apps. Because of this and since I didn’t have any big issues with Wells Fargo and wasn’t paying any maintenance fees for my decades-old account, I assumed I couldn’t really ask for more.
That was until I turned my sights to internet banking. Suddenly I learned that I could be actually earning on my savings while still avoiding fees. Since then, I’ve actually opened a few online bank accounts — but my first and most-used of these accounts comes from Discover Bank. So let’s dive into what advantages online institutions offer as well as what I like about Discover Bank specifically.
Editor’s note: this article was updated in May 2020 with the latest APY information.
What Online-Only Banks Have to Offer
The way I’ve utilized my checking account over the past few years isn’t exactly normal or smart. Aside from receiving my direct deposit and being used to pay rent, it basically acts a slush fund for my wife and me that just sits there until we need it. That’s not a terrible idea but, then again, it doesn’t earn us anything either. That’s why I decided it would be better to open a real savings account that would at least get us some interest.
Brick and Mortar Rates
Way back when the notion that I should be setting up a real savings account occurred to me, my first thought was to just open a new savings account with Wells Fargo or perhaps a local bank in my area. However I was shocked to learn that unless you have some serious bucks — we’re talking five figures here — you would only get a .01% interest rate on your account. Really?
I knew savings account rates were low but I didn’t know they were that low. Luckily internet banks offer much better rates.
Internet Bank Rates
At the time that I was first looking at online banking options, savings account interest rates were already 100 times better than most big institutions, with APYs north of 1%. As great as that sounds, these days those figures have more than doubled. In the case of my Discover Bank savings account, my current APY is 1.4% (accurate as of March 13th, 2020) while other popular options such as Synchrony are slightly higher.
Why I Went with Discover
Considering that the goal was to earn as much interest as possible, you may be wondering why I didn’t go with Synchrony, which tends to offer slightly higher rates than Discover. Truth be told, my main reason was that I already had a Discover It credit card and have been pretty impressed with my experience. I figured that having my credit card and other bank accounts under one roof made things easier and I seem to have been right about that. In fact, since the time that I first joined Discover Bank, they’ve upgraded their system so that you can access both credit and banking products with a single login where you previously needed separate usernames and passwords.
The Benefits and Drawbacks of Internet Banks
First a big plus: unlike many too-big-to-fail banks, Discover Bank and many of their ilk don’t charge a maintenance fee or mandate a minimum daily balance. Moreover various online institutions have different policies regarding overdraft fees, with some waiving such penalties in all situations and others like Discover reimbursing your first fine each year. Plus, just like regular bank accounts, online bank accounts are FDIC insured (or at least they should be — make sure to do your due diligence on an institution before joining).
As for the downsides, there’s no question that some will be concerned about the lack of a physical branch to go to. Personally, I rely so much on banking apps that I hardly remember the last time I visited a brick and mortar location. That said, the inability to deposit cash or a check in an ATM does mean that it can take longer to get your money into your account. In the case of cash, you may even have to rely on your “big bank” account to deposit the cash before transferring to your online account. Such delays mean you’ll need to think ahead if you’re actively using these accounts to pay bills — but hopefully you’ll be able to work out the kinks with some practice.
My Experience With Discover Bank
It’s now been a couple of years since I joined Discover Bank and, overall, it’s been a great experience. As I mentioned, during this time, my APY has continued to rise, so that’s a definite plus. However I’ve also noticed a few changes to my accounts over time that have been both good and, well, less than great. Let’s take a closer look at not only my Discover Bank savings account but also my checking account.
Cash Back Checking Exists
Funny enough, when I first joined Discover, I didn’t just open a savings account — I actually opened a checking account as well. That’s because Discover Bank offers cash back checking, which I thought would be a nice addition to my banking line-up. At the time the deal was that users would earn $.10 back for each debit transaction, check written, and more. I managed to maximize these dime bonuses by only using my debit card for transactions that were under a $1 and then transferring my acquired earnings to my Discover It card’s cash back stockpile.
Unfortunately Discover has since changed the structure of their cash back checking program, now offering 1% back on all debit card purchases. Admittedly this doesn’t do much for me as my Discover It card offers the same and other credit cards I have do even better. That said, this is probably the better program overall and could be perfect for those who either cannot qualify for a rewards credit cards or wouldn’t trust themselves with one.
Despite the structural change, as time has gone on, my Discover Bank has practically become my primary checking account. In fact it’s where I write my rent checks from. To that point, a few months ago, I also got to see how Discover’s “First Fee Forgiveness” program works as a mixup with my landlord resulted in an overdraft fee (that’s when I learned that postdated checks aren’t a thing). Although a $30 fee did briefly post to my account, a $30 credit was quickly issued since this was my first — and hopefully last — infraction. This was such a relief and made what turned out to be a frustrating situation at least a little bit better. Plus I can only imagine how much such a mistake would have cost me had it happened at a regular bank without such generous policies.
No Branch? No Problem
To be honest, the initial reason I decided to sign up for the checking account was because Discover debit cards offer access to (apparently) more than 60,000 ATMs without a fee. Since there’s not a Wells Fargo within a few hundred miles of my home I thought it would be wise for me to have a backup plan. Sure this whole plan only saves me a couple of dollars per withdrawal but everything adds up.
Like many banks, Discover’s app also allows you to deposit checks into your savings or checking account just by taking a photo of it. You can also sign up for various bill pay options, although I have yet to explore those despite the length of time I’ve had my accounts (so I really can’t speak to how that works.) Lastly, you can easily transfer money between your external and internal accounts using the app or website, so there’s really is no need for a branch.
A lot of what I liked about the Discover It card’s app also applies to the Discover Bank account. First the bank’s widget looks great in the iOS Today Screen and gives me at-a-glance updates on my balances. Additionally one of the upgrades that came to Discover’s debit cards when they added chips is that they are now supported in Apple Pay. As I mentioned, Discover Bank has also integrated with Discover credit cards, allowing you to see all of your accounts in the same place.
A Few Initial Issues
While I’m pretty satisfied with my account experience overall, there were a couple of problems I had when setting up my accounts forever ago. First, when signing up on the website, I was shown my account numbers and then presented with the option to register my accounts for online access. There was just one problem: clicking the button took me away from the page with my account numbers and there was no way back to them.
I assumed this wouldn’t be a big deal as surely they must have sent me an email confirmation, right? Sadly, no — aside from that initial confirmation page I had no other way of knowing if my accounts were actually even opened until several hours later when I was notified that my funding transfers had gone through. This should have been relieving but, since none of these emails contained my full account numbers, I was now sending money to accounts I couldn’t access. To be fair, I could have called their helpline to retrieve the info I needed, but I instead opted just to wait until my paperwork arrived in the mail.
Obviously this wasn’t exactly a deal breaker but I could see others being much more frustrated by such a situation than I was. I can also see some being upset that, in order to transfer between an external account and your Discover Bank account on the app, you must first add the external account information on the website. Again, not a huge deal but it is a little less elegant than you might want.
With all that said, this was several years ago now and was prior to a round of upgrades on Discover’s part. Therefore I can only hope that whatever issues plagued me so many months ago have now been resolved. Considering I haven’t run into any issues since, I’m thinking they just might be.
Final Thoughts on Discover Bank
There’s no doubt about it: bringing my savings to internet banking accounts was among the smartest money moves I’ve made. No longer am I letting my cash just sit in a checking account doing nothing. Instead I’m earning interest, which has also encouraged to save even more.
Beyond the increase in APY, on the whole, I’d say Discover Bank has improved even since my initially positive review. The merging of credit and banking accounts, sleeker debit card, and Apple Pay support have all been welcomed additions — even if my little $.10 trick no longer works. Furthermore, having found myself fallible and accidentally bouncing a check, it was great to see the bank’s First Fee Forgiveness save the day.
For all of those reasons, even though I now have other online bank accounts including Aspiration, my Discover Bank accounts are still my most used. With a current savings APY of 1.5%, I’ve found this to be the perfect place to house my emergency fund and other extra cash. So, if you’re looking for a better bank account to supplement what you currently have or want to get away from the big banks, I’d definitely recommend looking into what Discover Bank has to offer.