Dave Ramsey's a Big Fan of NeoBanks. Here's What They Are, and Why You Might Want to Use One

Should you listen to Ramsey on this tip?

Picking the right bank account can be complicated since there are many different financial institutions out there, each of which have their own pros and cons. Along with traditional banks and credit unions, there's also another newer option as well: neobanks.

Finance expert Dave Ramsey recently discussed the pros and cons of neobanks. It's worth taking a look at how these banks work and what Ramsey says about them, so you can decide if one is right for you.

What exactly is a neobank?

As Dave Ramsey explained, "A neobank technically isn't a bank at all." Instead, it's an online-only company that is not a chartered bank and that only offers traditional banking features such as a checking and savings account -- without any credit card or loan programs.

Neobanks focus on "apps, software and other high-tech ways to virtually manage your money," Ramsey said. "That makes them attractive to tech-savvy people who appreciate a better digital experience and don't want to go to a brick-and-mortar banking location."

When you sign up for an account with a neobank, the steps involved simply involve downloading an app and inputting some basic information to get your account open. You don't have to meet with any customer representatives or send in a lot of documentation. And once your account is open, you can manage it entirely online.

Here's why Dave Ramsey likes neobanks

Dave Ramsey indicated that, "there are a lot of things we like about neobanks," although he acknowledged that they aren't necessarily the right choice for every single person. Some of the key features that make these accounts great include:

• Lower operating costs: This enables them to pass savings onto consumers. As Ramsey explains, many of these accounts charge no monthly maintenance fees, unlike more traditional banks that usually impose this added cost unless you meet certain requirements such as maintaining a set minimum balance.
• Higher rates: Because neobanks don't have such big costs, they can usually pay a better rate on high-yield savings accounts. As Ramsey explains with an example on the Ramsey Solutions blog, the extra interest an online bank pays can sometimes be very impressive.
• Convenience: Ramsey said one big benefit of a neobank is that you have the ability to manage your account online and access its features 24/7, rather than having to do your banking during traditional business hours. He also said that many of these banks offer much wider access to fee-free ATMs, including those in places where you may shop anyway, such as convenience stores.

Ramsey also acknowledges the downsides of neobanks, including more limited account services and the lack of ability to access customer service in person. But, despite this, he thinks most people will do well using one. "We're going to be really honest with you here -- we're a big fan of neobanks. Traditional banks have been slamming folks with fees and credit card offers for far too long. They profit off of driving people into debt, and we're sick of it. That's why neobanks are great."

Ultimately, you'll want to research both the pros and cons that Ramsey discussed when you decide where to bank -- but you may just find a neobank is your best bet.