Online banking allows you to save time by managing accounts, paying bills, and doing other things from your computer or cell phone. The range of tasks you can complete online is so extensive that it's possible to ditch traditional banks altogether and move to online-only banks. These institutions have no physical branches to visit and often charge lower fees and offer better interest rates because they don't have the added expenses associated with brick and mortar structures across multiple locations. This kind of banking offers many conveniences, but there still may be hiccups as you manage your money.
Nearly everything you can do with an account at a traditional bank is possible through online banking. Online banking is also available from brick-and-mortar banks, which provide access to your accounts in person or online. Typical functions include online bill paying, mobile check deposits, checking bank balances, transferring money between accounts, setting up automatic payments, and sending money to another person.
General convenience of online banking
Easy to open new accounts
Potential for lower fees and better interest rates
Customer service lacks personal touch
Not an option for those lacking technical know-how
ATM options may be limited
Greater due diligence required to vet the bank
What Is Online-Only Banking?
While traditional brick-and-mortar banks allow you to complete some banking transactions online, some banks offer an exclusively online experience, with no physical branches to visit.
While you might have concerns about customer service or security, most consumers are quite satisfied with their online banking experience. Many online-only banks pay higher interest rates on savings. According to the American Bankers Association, 73% of Americans prefer to bank online, with 36% of those reaching for their mobile phones (instead of a computer). ATM transactions now make up only 6% of overall bank transactions.
Some issues still exist with banks that operate exclusively online, however, and the following can help you weigh the pros and cons of online banking.
Benefits of Online-Only Banking
There are several reasons why online banking is so popular.
Easy Account Opening
Opening an online bank account typically takes just a few minutes. You can complete most or all of the steps online or with a short phone call.
Get Your Pay Easily
Some online banks allow you to get your earnings or other direct-deposited funds a few days early. Those banks essentially let you spend that money before it even arrives in your account.
Easy Spending From Your Online Account
While you might be concerned about access to funds with an online account, you still have easy access as long as you use accounts that offer online bill pay or debit cards. You can use your card at an ATM, online merchant, or in-person retailer. If you get cash frequently, it’s also helpful to choose an online bank that has an extensive ATM network or reimburses you for any ATM fees you pay.
Drawbacks of Online-Only Banks
Online banks have their disadvantages as well.
Customer Service at Online Banks
With a brick-and-mortar bank, you may have some familiarity with the staff, and at a small credit union, the staff might even know you well.
If you’re the type of person who enjoys personal interactions, it’s easier to find that at a brick-and-mortar institution.
Problems are sometimes easier to solve in person. If an error occurs with your account, a face-to-face discussion may be the most effective way to make progress when things are confusing. You won’t have to wait on hold and deal with an “escalation” process when everybody can sit down together and figure things out.
The staff at a brick-and-mortar bank branch matters because it’s easier to get quality service if you know them, they know you, and they know what you typically do with your accounts. You can choose who you deal with if you’re familiar with the employees (ideally, there’s somebody you like working with).
However, online banks often require that you call in. You might get somebody on the line who’s helpful and knowledgeable, but you might not. You can always hang up and try again later, hoping to reach a better-qualified (or more service-oriented) representative, but that’s frustrating and time-consuming. Fortunately, customer service is often good at online banks.
Online banking websites sometimes go down. When that happens, there's no backup branch that you can go to, and the customer service phone lines will likely be clogged. To protect yourself, always keep a backup account open with some emergency cash so you won't be penniless while they fix the problem.
You can pay bills through online bill pay, but sometimes you need other forms of payment. In terms of cleared funds, if you need to pay somebody with a cashier’s check, an online bank account may slow you down, requiring you to order a check and wait for it to arrive by mail.
When there are no brick-and-mortar locations, handling cash can be problematic. Some banks allow you to deposit funds at an ATM or retail outlet, so research those options if you frequently get paid in cash.
Greater Need for Due Diligence
With brick-and-mortar banks, you know that the bank actually exists, has branches and employees, and is authorized to operate. With online-only banks, you may have to do your own research to ensure that they are authorized and registered with the proper regulators, have sufficient capital, and have satisfied clients.
The Bottom Line
Unless you simply cannot tolerate any of the situations above, you'd probably benefit from opening an online account. There are several reasons to consider online banks:
- They offer an easy way to bank for free.
- They're your best bet for securing high interest rates.
- They offer convenience in a variety of ways.
You may never run into any of the problems mentioned above, and your overall experience will probably be satisfying, but you should always be prepared for occasional glitches.