What Are Online Banks?
Online banks enable you to manage your bank account on a mobile app or website. They’re a lot like traditional banks, except they often don’t have physical branches. While it may seem unusual to think about banks without brick-and-mortar locations, these online banks are working to eliminate the aspects of traditional banking that people dislike and refine what works.
This refining process has already resulted in several benefits. Namely, online banks often charge fewer fees (if any at all), offer more perks for members, and are more convenient to use—with an online bank, members can perform all of the regular banking tasks they’re used to doing (depositing, paying bills, earning interest, etc.) from the comfort of home or on the go.
This guide highlights the key features of online banking. We’ve dug into what to expect to help you feel more confident in your dealings with online banks.
When you bank with traditional banks, hidden fees aren’t uncommon. These fees can vary from bank to bank, but generally, they include account fees, ATM fees, and account opening fees. While these fees aren’t non-exist with online banks, they’re less common. In fact, many online banks don’t charge any fees whatsoever. Instead, online banks are often paid through other means, such as receiving a percentage of every purchase from retailers.
With most online banks, you don’t even need to maintain a certain amount in your accounts. It isn’t uncommon for traditional banks to require that members maintain a certain amount of money in their accounts to avoid being charged a monthly maintenance fee. That said, online banks often reward members for either maintaining a certain amount or making recurring deposits of a certain amount into their accounts.
Other than fewer and lower fees, online banks also tend to offer greater perks and savings. This makes sense, as with less physical real estate to worry about (if any), these banks can more freely pass savings on to members with higher APYs on savings. Spending also tends to be rewarded by online banks, often in the form of a cashback.
Arguably, the best thing about online banks is their convenience. With a traditional bank, you have to go to a physical location, wait in line, and are limited to banking during business hours. While this isn’t necessarily a bad thing, it’s certainly more time-consuming than banking online. Plus, beyond pure convenience, online banking is a much more socially-distanced way to bank, as you don’t have to be around others to get your banking done.
In addition to these benefits, online banking allows you to do virtually everything you can do with traditional banking. You can set up direct deposit, earn interest, send money to people, withdraw money, pay bills, get physical debit/credit cards, and complete other common banking tasks. As you go about your day-to-day spending, you’ll likely forget that you’re even using an online bank—that’s how well online banks have closed the gap.
And while you can’t deposit cash with every online bank, you can withdraw cash as you normally would. Online banks often make this process easier with the GPS-tracking capabilities of most of their mobile apps. No matter where you are, you can usually just open up your online bank’s app and use the “ATM Finder” feature to find the ATM closest to you, helping you to avoid potential outside-network ATM fees.
Diminished Physical Presence
Online banking is more convenient than in-person banking, but if you are someone who relies heavily on in-person support or branch visits, then switching to an online bank that has no branches can be an adjustment. That said, online banks often make up for having no branches by offering excellent customer support services. This means that whenever you do want to speak with a person, you can often do so over the phone, by email, or even via live chat—depending on your preference.
Harder to Deposit Cash
If you’re someone who deals with a lot of cash, you may find the cash-depositing process cumbersome with some online banks. Often, you’ll need to do one of three things: find a deposit-accepting ATM, deposit your money into a traditional bank account and then transfer it to your online one, or buy a money order and then deposit it electronically using your online bank’s app. Considering all of the benefits that come with using an online bank—and the diminishing necessity of cash—this may not be a huge deal.
The Bottom Line
It’s easy to think of online banks as regular banks without physical branches, more perks, and greater convenience. Regardless of their stripped-down profile, online banks allow you to do virtually everything you would normally do at a traditional bank, like sending money to people, depositing checks, earning interest, and paying bills—just online. Ultimately, if you’re looking for a more convenient way to do your banking, then switching to an online bank may be a good option that comes with additional benefits.