The Pros and Cons of Online Banking
As more and more businesses continue to move online, traditional brick-and-mortar banks have been looking for ways to deliver online services to customers. Over time, banks and credit unions have improved their websites and enabled customers to open new accounts, download forms, and process loan applications, among other tasks—all online.
Online-only banks have also become popular options. These institutions offer online banking and other financial services without a network of physical branch offices. Since online banks don’t have the overhead associated with brick-and-mortar banks, online-only financial institutions are typically able to offer their clients higher interest rates on deposit accounts and fewer service fees. This has proven to be extremely popular with consumers.
Today, more than 60% of Americans do at least some of their banking online, according to the Federal Deposit Insurance Corporation (FDIC). People say they appreciate the flexibility of online banking and that it allows them to save time by managing accounts and paying bills using a computer or cell phone. The range of tasks that can be completed through an online bank has steadily increased and is now quite extensive. So much so that nearly everything that can be done at a traditional bank can now also be accomplished online. This includes online bill payments, mobile check deposits, checking bank balances, paying bills, transferring money, setting up automatic payments, and sending money to other people.
However, while online-only banks do offer many advantages, they may not be right for everyone. There are some drawbacks to consider. Let’s take a look at the pros and cons of online banks to help you decide if they’re the right fit for your needs.
The Pros of Online Banking
Better Rates, Fewer Fees
As we mentioned, the lack of overhead costs allows online banks to typically pay higher interest rates or annual percentage yields (APYs) on deposit accounts. The most generous online banks offer rates as high as 2%, more than double the interest earned on similar accounts at many traditional banks. Online banks often offer high rates on savings accounts, checking accounts, and certificates of deposit (CDs). Some online banks also don’t penalize early withdrawals from CDs.
Additionally, online banks often charge fewer fees than traditional brick-and-mortar banks, and the fees they do charge tend to be at lower rates than those at other financial institutions. For example, many online banks do not require a minimum monthly account balance and do not charge monthly maintenance fees on their accounts. Many online banks don’t charge service fees at all.
Accessibility and Convenience
With traditional banks, customers are typically limited to business hours. Online banking enables people to access their bank accounts at any time. As long as there’s an Internet connection, customers can bank 24/7, seven days a week. To help with any issues or questions that pop up, many online banks offer customer service online and by phone. Customers can often even reach customer service on social media now that many online banks have very responsive Twitter and Facebook teams.
Online banking also makes it possible to bank wherever it’s convenient. From the comfort of their own home and on the go, customers can do their banking on a computer, tablet, or smartphone. Instead of waiting in a long line to see a bank teller, people can simply fire up the nearest Internet-enabled device from anywhere.
Intuitive Online Experience
Traditional banks are investing more resources into improving their virtual operations, including launching a variety of new apps and enhancing their websites. However, some traditional banks are playing catch-up to online-only banks that offer a more integrated, immersive, and intuitive online banking experience. Surveys have found that customers prefer online-only banks when it comes to the quality of the banking experience and the simplicity of transactions they execute.
The Cons of Online Banking
Lack of Physical Branches
For people who appreciate in-person service, online banking might not be ideal. A traditional brick-and-mortar bank, after all, provides the opportunity to get to know the staff at a local branch and get face-to-face service. That can be an advantage when applying for certain financial products such as mortgages and other loans. Depending on your preferences, it can be a benefit to be able to visit a physical bank.
Finally, it is important to be aware that some online banks do not offer all of the services that are available at traditional brick-and-mortar banks. Products and services that may not be available from an online bank include notary services and safe deposit boxes. Additionally, depositing cash can be limited. To deposit cash, some online banks require customers to find a deposit-accepting ATM.
The Bottom Line
Online-only banks are a convenient and easy way for people to bank whenever and wherever it suits them. And the better interest rates and lower fees can help people keep more of their hard-earned money. However, online banks may not be ideal for some. Those who enjoy banking in person or need a full range of banking services may find online banking to be an adjustment. You’ll want to consider your individual banking needs and consult the policies of any online bank before opening an account. Online banking has many advantages, though, that a wide range of customers will appreciate.