Top 4 Reasons for Using Online Banks

What Are the Main Advantages of Using Bank Online?

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If you've never used an online bank, you may be wondering why they're so popular and how they differ from traditional brick and mortar banks. There are plenty of similarities, but a few key differences make online banks attractive to web-savvy consumers.

Free Checking

Online banks are your best bet if you want to get free checking. Free checking used to be the standard at nearly all banks, but it’s getting harder to find these deals. In most cases, you have to qualify for free checking at brick-and-mortar institutions by having your paycheck deposited automatically or by keeping a large balance in your account.

That’s not the case at most online banks—they offer truly free checking accounts to anybody who has at least one dollar to deposit. Additionally, you may be able to earn interest on cash in your checking account if you use an online bank. The interest rate is generally not as high as a savings account interest rate, but it’s a lot more than you earn at traditional banks.

Some brick-and-mortar banks and credit unions also offer free checking, and may even pay interest with reward checking accounts but typically only smaller institutions offer these benefits.

Higher Interest Rates

Online banks are known for paying higher interest rates (or APY) on savings accounts and certificates of deposit (CDs). The idea is that they don’t have to pay the overhead costs associated with building and maintaining a physical branch, so they can pay a little more. In the early days of online banking, higher rates were the main attraction—and you’re still likely to find better rates online.

If you’re looking for the absolute highest interest rate available, an online bank is probably where you’ll fare best. Just don’t be disappointed if you find that another bank beats your rate. That is why some people keep accounts open at a number of online banks and transfer money between accounts as rates change. This strategy may pay off, but make sure to pay attention to any transfer days during which your money is not in any account earning interest.

Good Technology

Online banks generally lead when it comes to banking technology. They’re not always first, but they tend to offer new features before stodgier brick-and-mortar banks do. For example, mobile check deposit is a good way to fund online bank accounts without having to mail in deposits (which means you can start earning high-interest rates more quickly). Some small banks and credit unions offered this service before even the largest online banks. So, you may not get the newest technology first, but you’ll get it soon enough.

Online banks also allow you to get features you might not otherwise have access to. If your bank still doesn’t offer free online bill pay or person-to-person payments, there’s a good chance you can find an online bank that offers these programs. You might also enjoy a larger ATM network—depending on where you live—making it easier to make withdrawals for free.

You Can Skip the Branch

Ultimately, online bank accounts save you the time of having to visit a branch. If you need help, most banks offer remote customer service—via chat, email, or toll-free phone lines. And, as competition increases, so does the quality and availability of customer service.

Also, people living in small communities may appreciate the anonymity that comes with an online bank—nobody in town needs to know about your financial transactions.

Are Online Banks as Good as Brick-and-Mortar Banks?

Online banks are a viable addition to the banking world, but they are not perfect. If you prefer working with people in person, you may want to stick to a brick-and-mortar institution. You also need to be comfortable using computers, and you need a basic understanding of internet security because you need to keep your systems current to avoid phishing scams. And, as with anything IT, from time to time, you may experience technical glitches, but for most people, the benefits outweigh the inconveniences.