How (and why) to pick a neobank

This wonderful invention we call the internet has brought us countless glorious things. Here’s three: New parents can order fresh diapers in the middle of the night. You can host family Zoom calls in the middle of a global pandemic. And, oh yeah, a completely revolutionized banking experience.

Here’s an example for those too young to remember: You know that old expression, the check’s in the mail? In the old world, that’s exactly how it worked. Someone would write you a physical check, on a real-life piece of paper. They would drop it in the mail. A few days later, you’d get it. Then you would take it to a physical bank, sign it, and hand it over. A few days later—after the check cleared—that money would appear in your account. The whole thing would take weeks, if not longer. It was crazy.

Now, of course, you can open any number of apps and send someone money instantaneously. You can pay your bills, your babysitter, your handyman (or -woman), with a few taps on the screen of your mobile phone. So yeah: Pretty great.

Moreover, you can get those services from the big banks, but there is a new fleet of digital-first banks that are perfecting that experience. One such bank is Aspiration, a so-called neobank (or online-only, or digitally native bank) with an emphasis on rewarding behavior that puts the environment first. (“Save money, save the planet,” as the company says.) As with all neobanks, Aspiration offers exactly zero physical branches, instead allowing you to set up a checking or savings account online or through your mobile phone. (And technically, most neobanks are not actually banks, but companies that partner with a chartered bank to provide a customer experience that’s wholly online, yet fully backed by the FDIC.) With Aspiration, not only are you reducing the massive amount of paperwork that old banks often still require, you’ll also get cash back for making purchases at recognized, eco-friendly vendors.

“Tech in general is disrupting the industry,” says Alexandra Horigan, Aspiration’s VP of Strategic Initiatives. “People are no longer okay with the status quo. They are becoming more aware of the power they have as consumers, and are to some extent, turning against these huge industry giants that have dominated everything saying there’s got to be a better way.” That’s part of why Aspiration, and other neobanks like it, is changing banking for the good. We spoke with Horigan about how you should go about choosing a neobank, and what makes Aspiration stand out.

Here’s what else she told us.

1. Do your homework

Choosing a bank is arguably the most important financial decision you will make. “Certainly researching online should be the first thing to do,” Horigan says. “Going straight to the big banks is going to lead to big bank results. There are so many alternatives to everything these days, from the dish soap that you’re buying to reusable literally everything. There is a better, cleaner, safer, smarter, more eco-aware alternative to everything these days, and banking is a huge part of that.”

It probably won’t surprise you that you can find expert and customer reviews for banks online much the way you can find restaurant reviews everywhere from your local newspaper’s site to Yelp. These reviews will cover everything from the site experience and customer service to interest rates and rewards programs, even how many ATMs are in the bank’s network. Expert sites include NerdWallet, The Ascent and The Balance. Looking at some or all of these will be a great place to start. And as with any bank, you should make sure that your account is backed by the FDIC, which helps ensure that your money will still be there even if something happens to the bank itself.

2. Consider your values

With literally dozens of banks to choose from, you might discover that, even after looking at the reviews, you still have a slew of possible options. Your next step to narrow things down? Consider the reality that you vote with your dollars, and that not every bank is the same in that respect. As Horigan puts it, “Do you want your money to align with your values, or do you not care? Do you understand that you’re voting every time you swipe your card somewhere?”

For example, most banks take the money you deposit and then re-invest it elsewhere, which is how they can both pay you interest and make money for themselves. For some banks, this might mean investing in fossil fuels, or other industries that might not align with your values. In a very real sense, this is your money. Does your bank spend your money in a way that you feel good about? If not, factor that into your search for a new bank.

3. Consider the interest rates

As you might already know, interest rates are at historic lows right now, and likely will be well into the future. (Keeping them low is a form of economic stimulus.) So while you’re not going to pay off your mortgage on savings account interest, it’s still worth knowing that many neobanks offer above-average interest rates for their savings accounts. In part this is to incentivize people to give them a try (and in turn help them hold more capital). These banks also have lower overhead and can afford to offer incrementally more interest. It might not put your kids through college, but you still want your money to make money if at all possible, don’t you?

4. Consider the costs

As you might expect, eliminating physical branches significantly reduces the expense of running a bank. This in turn means you can often open a neobank account with lower (or non-existent) transaction fees, withdrawal costs and so on. In other words, the cost of maintaining your money is often reduced to zero. When combined with the above information about interest rates, that can mean more money in your pocket, instead of your bank’s.

In addition, many neobanks offer easy-to-use budgeting tools that can help you track and cut down on expenses, plus intuitive services that make saving money a cinch—for example, rounding up every expense so that the spare change automatically goes into your savings account. Finally, because of the novel way neobanks are set up—again, they’re often providing the user experience while another certified bank is actually holding your funds—many don’t charge overdraft fees.

5. Consider the tradeoffs

As in other industries, it is understandable if you prefer to place your trust with the tried and true. There is security that comes from experience, and that’s something most neobanks can’t yet offer. Same goes for the feeling that comes from sitting across from a trusted banker IRL.

At the same time, young, digital-first businesses are often far more innovative than the old standbys, and are often lighter and quicker to respond and reorient when challenged. (Something that’s proven useful lately.) Case in point: Aspiration has something called the Conscious Coalition, a carefully vetted sense of partner companies that share Aspiration’s planet-focused values. When you shop at those companies, you earn cash back, often at a higher rate than you would with other banks. Considering more companies are doing more to become more sustainable (and have been for some time), this is the kind of rewards system that should become more, well, rewarding in the future.

Many neobanks also offer faster approval on loan applications. And because they’re typically smaller, neobanks are often more interested in providing small business loans than a bigger bank might be.

And again, as Horigan points out, how you spend your money is the clearest way of expressing what’s most important to you—and it can also be a way to set yourself up well for the future. “At a base level for us, there’s a belief that companies that have sustainability built in are better poised for long-term success,” she says. “You can still find great companies that are committed to having sustainability baked in.”

Make sure it’s safe. Make sure its values align with yours. And then see if there are any bonus benefits that appeal to you. Follow those three steps, and you’re on your way to finding the right neobank to you. And again, the lightness of a digital-first bank can be an advantage unto itself. “One of the biggest benefits is having the online experience first,” Horigan says. “You have that access [to your money] everywhere. We don’t rely on people being in person to manage your finances. By nature of being virtual, we can be more flexible.” And as we’re all learning right now, a little financial flexibility goes a long way.