Online banking is a convenient and efficient way to manage your money and perform various financial transactions. Online banking allows you to access your account history, transfer money, pay bills, deposit checks, and more from your computer, smartphone, or tablet. You can also open accounts, apply for loans, and earn interest with online-only banks that operate without any physical branches.
Online banking is also available with brick-and-mortar banks and can offer you the advantages of the online only banks while also giving you the convenience of having a local office with staff for assistance.
However, online banking also comes with some potential drawbacks that you should be aware of before choosing an online-only bank or relying solely on online services. Let’s talk about some of the benefits and concerns of online banking and other financial transactions and discuss some tips on how to make the most of your online banking experience.
Some of the benefits of online banking include:
- Potentially higher interest rates. Online-only banks typically offer higher annual percentage yields (APYs) on savings accounts, certificates of deposit (CDs), and other interest-bearing accounts than traditional banks. This is because they have lower overhead costs and can pass on the savings to their customers. For example, as of February 2024, the average APY for a savings account at an online-only bank was 0.65%, compared to 0.06% at a traditional bank. Some brick-and-mortar banks may offer the same percentage yields if you agree to paperless statements and information when setting up an account for online only service.
- Potentially lower or no fees. Online-only banks may also charge lower or no fees for common services such as monthly maintenance, overdrafts, ATM withdrawals, wire transfers, and foreign transactions. This can save you a lot of money over time. For instance, in 2022 alone, U.S. banks charged a total of $7.7 billion in fees just for overdraft and insufficient fund transactions.
- Deposits are insured. Just like traditional banks, online-only banks are insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA) up to $250,000 per depositor per institution. This means that your money is safe even if the bank fails.
- Convenience and accessibility. Online banking allows you to access your account and perform transactions anytime and anywhere, as long as you have an internet connection. You don’t have to worry about branch hours, waiting in line, or driving to a physical location. You can also use mobile apps to deposit checks by taking a photo, send money to friends and family using peer-to-peer payment services, and manage your budget using personal finance tools.
Some of the concerns for online banking include:
- Lack of personal service. Online-only banks do not have physical branches where you can seek help from tellers and other bank personnel in person. If you have a problem or a question, you may have to rely on phone calls, emails, chats, or FAQs to get assistance. This may not be ideal if you prefer face-to-face interactions or need immediate resolution.
- Difficulty depositing cash. Online-only banks do not have their own ATMs where you can deposit cash. Some online banks belong to ATM networks that allow you to deposit cash at certain locations, but not all of them do. If you need to deposit cash frequently, you may have to use a third-party service that charges a fee or open a separate account at a traditional bank.
- Limited services. Online-only banks may not offer the same range of products and services as traditional banks. For example, some online banks do not offer business accounts, mortgages, credit cards, or investment accounts. Some online banks also have lower limits on how much money you can transfer or withdraw per day or per month.
- Security risks. Online banking involves transmitting sensitive information over the internet, which exposes you to the risk of hacking, phishing, identity theft, and fraud. While online banks use encryption and other security measures to protect your data and funds, you also have to be careful about using strong passwords, avoiding public Wi-Fi networks, updating your software, and recognizing suspicious emails or websites.
To make the most of your online banking experience, here are some tips to follow:
- Compare different online banks before opening an account. Look at the interest rates, fees, features, customer reviews, and security policies of various online banks and choose the one that best suits your needs and preferences. Also check your local banks to see what they offer for switching to an online account.
- Keep some money in a traditional bank account for emergencies or cash deposits. Having a backup account at a brick-and-mortar bank can help you access your money quickly in case of an outage or a technical issue with your online bank. It can also make it easier to deposit cash or get cashier’s checks when needed.
- Use multiple authentication methods to secure your account. Most online banks offer two-factor authentication (2FA), which requires you to enter a code sent to your phone or email after entering your password. This adds an extra layer of security to your account and prevents unauthorized access. If the bank does not offer a two-factor authentication with their online service, it may be advisable to check for other banks that offer similar services along with the security of two-factor authentication.
- Monitor your account activity regularly and report any suspicious transactions. Check your account statements and transaction history frequently and look for any errors or unauthorized charges. If you notice anything unusual, contact your bank immediately and dispute the transaction. You may also want to set up alerts or notifications for certain transactions or events, such as low balance, large withdrawal, or login attempt.
- Take advantage of the online banking features and tools. Online banking offers many benefits that can help you manage your money better and achieve your financial goals. For example, you can use online banking to:
- Automate your savings by setting up recurring transfers to a high-yield savings account or a CD.
- Pay your bills on time and avoid late fees by scheduling automatic payments or using bill pay services.
- Track your spending and budget by categorizing your transactions and using personal finance apps that sync with your online bank account.
- Earn rewards or cash back by using a debit card or a credit card linked to your online bank account.
Online banking is a convenient and efficient way to manage your money and perform various financial transactions. It also has some potential drawbacks that you should be aware of before choosing an online-only bank or relying solely on online services. By comparing different online banking services, keeping some money in a traditional bank account, securing your account, monitoring your activity, and taking advantage of the online banking features and tools, you can make the most of your online banking experience and enjoy the benefits it offers.
Additional Information:
https://www.usnews.com/banking/articles/pros-and-cons-of-online-banking
https://www.investopedia.com/articles/pf/11/benefits-and-drawbacks-of-internet-banks.asp
