What Is Online Banking?

Here's What You're Missing

Image shows a woman sitting at her computer doing some banking online. Text reads:

Image by Julie Bang © The Balance 2020

Online banking gives you the ability to manage money online with your mobile device or computer. There’s no need to visit a bank branch, and you can do what you need to do when it’s most convenient for you. They can be easier to use, they usually have higher interest rates, they’re free or inexpensive, and they’re better for tracking spending.

Money is increasingly electronic. Some people still use cash, but other forms of payment have become more popular. Why? They can be easier to use, they’re free or inexpensive, and they’re better for tracking spending. Banks play a meaningful role in that evolution.

Online banking used to be limited to banks that operated exclusively online. But now, even big brick-and-mortar banks and local credit unions offer online services. That said, you can still use an online-only bank, and we’ll discuss the pros and cons of different choices below.

Online Banking Services

Skipping a trip to the branch means you can conduct business anytime, from (almost) anywhere. But what can you really accomplish? A lot.

To bank online, you’ll need to use your computer or an app on your mobile device. Getting started can be tricky if you’re not comfortable with technology, but everything gets easier once you’re set up.

Open accounts: You can open checking, savings, and other accounts online, without the need to print or sign anything. In the past, you had to sit with a personal banker during business hours and fend off numerous sales pitches. With electronic signature capability, the entire process might take less than ten minutes.

Pay bills: Instead of writing checks to pay bills, your bank can print and mail a check for you — month after month. It’s also possible to transfer money to your payee electronically, even if the amount you owe changes every month.

Transfer funds: Need to move money from your checking account to your savings account? How about putting extra cash into a certificate of deposit (CD) or opening a brand-new CD? You don’t need to visit a branch or wait on hold to get those things done. You can even link bank accounts at different banks and zap money back and forth.

Apply for loans: Loans are a “paperwork” intensive process. But they don’t have to be. Type in your information, which will speed the process of checking your credit, and your bank will get back to you with an answer. Some lenders operate entirely online, and they can make almost-instant lending decisions.

Get good rates: Online banks are known for competitive rates. In theory, you should be able to earn more in online savings accounts and pay lower interest rates on loans. It’s always a good idea to shop around and compare online banking rates to traditional rates, but you’ll almost always do better online. Some brick-and-mortar banks offer online-only options. To use those accounts, you’ll have to give up your paper statements (which you might prefer anyway) and the ability to bank with a teller.

Deposit checks: When somebody pays you with a check, there are several ways to deposit it. The fastest and easiest option is to use remote check deposit: Snap a photo of the check and submit it to your bank for payment. There’s no need to visit a branch or mail the check in. For more details, learn how to deposit checks with your mobile device.

Stay informed: In addition to manually checking your account online, you can use “old-fashioned” text messages to manage your account, check balances, and more. Sometimes it feels like too much work to open an app and log in just to find out how much you have available. Find out exactly what types of services are available and how you benefit from texting with your bank.

View history: Need to see if that check cleared, or how much your employer paid you? It's easy to view transactions online, download historical statements, and search for specific events.

Dodge fees: Online banking services typically cost less than traditional brick-and-mortar accounts — while still offering competitive rates. You’ve got a good chance of landing a free checking account and avoiding monthly maintenance fees with an online bank.

Pros and Cons of Online Banking

There are numerous benefits to online banking, and it’s worth at least having the option to bank online. But traditional banks and credit unions also have their place.

In-person services: Banks do more than just hold money and shuffle it around. They can also provide notary services, safety deposit boxes, and official checks in an instant. You might not need those services often, but when you do, it’s typically during an important event. Evaluate whether or not it makes sense to keep a local account open.

Technology issues: If you’re not comfortable with technology, online banking may be more trouble than it’s worth. Plus, glitches happen, and if your computer (or the bank’s computer) isn’t working, then there’s not much you can do. For complex situations like pesky customer service issues or discussions about different types of loans, it might be best to have a face-to-face conversation.

No cash? There’s also the issue of getting cash. Online-only banks typically provide a debit card that you can use to withdraw cash, and they may even belong to networks with free ATM access. But for large deposits or withdrawals, a branch is always best.


All of this might sound good, but is your money safe?

Online banking is typically considered safer than traditional banking. Having your pay directly deposited into your bank account eliminates the risk of somebody stealing your check from the mail. Plus, nobody can copy your account information from checks that you send to billers when bank computers send that information back and forth securely. If fraud or errors occur, federal law often protects you, as long as you act quickly.

Staying safe is relatively easy. Keep your computer and devices up-to-date. In particular, ensure that the operating system, antivirus software, and firewall are kept current. Use difficult-to-guess passwords, and never write them down. Finally, never respond to emails, phone calls, or text messages that ask you to provide sensitive account (or personal) information.

To be sure, scams occur online. As long as you only send money to somebody that you’re 100 percent certain you know, you should be able to avoid most of them. Just remember that the riskiest actions are giving money or information to somebody else.