Online Banking: Advantages and Limitations
Advantages of Online Banking
Some advantages of online banking go hand-in-hand with simply being online; others are competitive advantages provided by online banks taking advantage of their cost structure. The most prominent benefits provided by online banking include:
24/7 Account and Service Access
Online banks are accessible 24/7, as long as you have an internet connection. Some online banks, such as Ally Bank, take this perk one step further, giving you 24/7 phone access to a real-life customer service agent. This can be extremely helpful if you don’t have access to the internet, or if you feel you need the assistance of a human brain, rather than a computer algorithm.
Speed and Efficiency
If you need to transfer money, apply for a new loan, or perform nearly any banking transaction, you’ll typically have to wait in line at a bricks-and-mortar banking location. With an online bank, there’s never any waiting. As long as you can log in, you can access your accounts, request a new credit card, or perform nearly any banking transaction you desire without driving down to a bank or waiting in line.
Online Bill Payment
One of the great advantages of online banking is online bill pay. Rather than having to write checks or fill out forms to pay bills, once you set up your accounts at your online bank, all it takes is a simple click — or even less, as you can usually automate your bill payments. With online bill pay, it’s easy to manage your accounts from one central source and to track payments into and out of your account.
Low Overhead Can Mean Low Fees
Online banks don’t have to pay for things like electricity, janitorial services, landscaping, or rent, so they can pass those savings along to customers. Typically, this means that online banks can charge fewer fees than traditional banks. For example, most online banks offer a free online checking account with no deposit, along with other no-fee bank accounts, such as IRAs. There are a number of online banks with free checking and no minimum balance; if you’re worried about applying for an account with bad credit, you might be able to open a bank account online for free, no credit check required, although there might be ongoing fees.
Low Overhead Can Yield High Rates
In addition to offering low fees, online banks often have the best interest rates, whether you are looking for a certificate of deposit, a high yield checking account or deposit accounts with high interest, such as a money market account. Although rates fluctuate, if you look at a current list of best CD rates or best free online checking account rates, you’ll usually find that the banks paying the best interest rates are online banks.
Disadvantages of Online Banking
No one type of bank can be the best at everything. In spite of their many advantages, there are some drawbacks to using online banks as well. Here are some of the downsides of working with an online bank:
In many ways, an online bank is only as good as your — or their — internet connection. If there’s a power outage, or if servers go down, you might not have any access to your account whatsoever. While some banks offer a phone number for customer service, it might be overwhelmed if online access is down. With a real bank, you can always find someone to talk to in the branch.
While many online banks are reputable and well-established, sometimes it can be hard to feel comfortable with a bank that doesn’t have a physical presence, particularly when large sums of money are involved. If a website suddenly folds up, what will happen to your money? There’s also the risk of identity theft — or actual theft — if someone gains unauthorized access to your account via a hacked or stolen password or log-in credentials.
Inefficient at Complex Transactions
Online banks might be able to transfer money between accounts or pay bills, but you might be more comfortable with an international, bricks-and-mortar bank if you have complex transactions. Worldwide, business-oriented banks like Chase have global transaction capabilities, such as the ability to send payments to more than 35 different currencies worldwide, that online banks might not be able to muster. Without a real-world presence, most online banks can’t even offer the services of a notary public, which require an in-person visit and necessary for most important financial transactions like buying a home.
No Relationship With Personal Banker
Over time, you can develop a relationship with a personal banker if you visit a traditional bricks-and-mortar location. If you’re dealing with an online bank, on the other hand, you’re typically handed off to an anonymous customer service agent who is unlikely to know you from the next customer. If you’re really in a bind, financially speaking, having a relationship with someone who can help and who knows you well can be a major advantage over a strictly online banking relationship.
Inconvenient to Make Deposits
It might seem counterintuitive that a bank, whose purpose is to attract assets, makes it hard for customers to make deposits, but that can be true in the case of some online banks. With an online bank, you can’t simply drop off cash or a check at a local branch. In fact, some online banks, like Ally Bank, won’t accept cash deposits at all. Using Ally Bank as an example, to make a deposit you’ll have to mail a check, transfer money from another bank or another account, or use the bank’s e-check deposit service.