Online checking accounts offer a convenient alternative to keeping your money in a brick-and-mortar bank. You maintain an online checking account with a computer or smartphone, and you can open it, check your balance, pay bills and transfer money between accounts without setting foot in a physical location. You can even deposit a check or cash without going to a branch. Smartphone apps enable you to deposit a check by taking a picture of both sides of it.In addition,many online banks contract with ATM companies so that customers can use their machines to make cash deposits.
Key Takeaways
- While online checking offers advantages over traditional physical banks, consumers should be aware of certain disadvantages.
- Online checking permits you to open an account, check activity, pay bills and transfer money without visiting a branch.
- Customers may miss interacting with a teller face-to-face. Online banking also means being vigilant about protecting your login credentials.
Online Checking Accounts Offer Higher Yields and Lower Fees
Online banks have less overhead than their brick-and-mortar counterparts, and most pass those savings to their clients in the form of higher yields and lower fees. As of May 2023, the U.S. average annual percentage yield (APY) for checking accounts is 0.07%, according to the Federal Deposit Insurance Corporation (FDIC). However, online banks can be found offering checking accounts with APYs of 3% and higher. Another big draw for online checking is its low fees, also a result of overhead savings being passed on to the consumer. Because online banks typically do not maintain dedicated ATMs, many reimburse their customers for the charges they incur making out-of-network withdrawals.
Attractive High-Tech Features of Online Checking Accounts
High-tech features, such as budgeting assistance and compatibility with personal finance software such as Quicken and Microsoft Money, are another big draw to online checking accounts. Manyenable you to set up automatic weekly or monthly transfers of a set amount of money to or from other accounts. This service can help you stick to a monthly budget or build your savings. Another popular feature is the automatic downloading of account information to personal finance software, which also helps with budgeting and can make filing your taxes much less arduous.
Drawbacks of Online Checking Accounts
Before signing up to make the switch, understand that online checking accounts come with a few drawbacks, including not having access to face-to-face customer service. Sitting down with a personal banker at your local branch can make it easier to deal with any issues that arise with your account. With online banking, however, the best you can hope for is a call center representative at a toll-free customer service number. Some online banks offer 24-hour customer service by phone, while others limit their customer service to normal business hours.
Online security is another concern. Few things are more sacred than your banking information, and few things can cause you more trouble if it falls into the hands of an unscrupulous person. Though most online banks provide encryption software and high-tech site security, cybercriminals have used malware to infect online banking customers’ browsers and steal login and password information. Keeping your computer and mobile devices free of malware and viruses is paramount if you maintain your checking account online.
Are online banks covered by FDIC insurance?
Yep. In their words: "The FDIC provides insurance for the funds that you deposit in FDIC-insured banks. This means that, if your FDIC-insured bank fails, the FDIC will protect you against the loss of your insured deposits whether the bank is brick and mortar or online-only."
Do online or traditional physical banks offer better interest rates on checking?
Since online banks pay less overhead than brick-and-mortar rivals, most pass those savings to their clients in the form of higher yields and lower fees. While most banks offer around 0.07% in interest, online banks can be found offering checking accounts with APYs of 3% and higher, as of May 2023.
What are online checking accounts' disadvantages?
Customers may miss interacting with a teller or bank manager face-to-face. Online banking also means being vigilant about protecting your login credentials and not falling victim to online scams.
The Bottom Line
Trading your brick-and-mortar bank for an online checking account has pros and cons. The pros include higher yields, lower fees, and high-tech features that help with account maintenance and budgeting. The cons include more difficult access to customer service, as well as online security concerns. Ultimately, you have to decide what’s right for you.
FAQs
The Bottom Line
What are the 2 pros and cons of online banking? ›
Despite the rising virtual presence of traditional banks, online-only competitors still offer some clear advantages for consumers.
- Better Rates, Lower Fees.
- Better Online Experiences.
- No Personal Relationships.
- Less Flexibility With Transactions.
- The Absence of Their Own ATMs.
- More Limited Services.
Here are just a few of the main benefits:
- 1: Your money is available anywhere. ...
- 2: Money transfers are easy. ...
- 3: Opening a new account is a breeze. ...
- 4: Other banking services are so much quicker. ...
- 1: Tech sometimes may fail. ...
- 2: Getting in-person customer support can be difficult. ...
- 3: Security may be a concern.
In conclusion, traditional banking offers a range of advantages such as personalized customer service, physical branches, and a sense of security and trust. However, it also has its drawbacks, including potential fees, limited accessibility, and lengthy processes.
What is a negative to online banks? ›
Some disadvantages of online banking include: No physical branches when you need help. Challenging cash deposits. No access to foreign currency.
What are the pros and cons of a checking account? ›
The primary benefit of checking accounts is the ability to store money you intend on spending, either through debit card transactions, checks, or cash withdrawals. However, the downside is they typically don't pay interest.
What are 3 advantages of online banking? ›
The 5 benefits of online banking
- Check balances on accounts and view records of your transactions.
- Pay bills automatically each month with easy-to-set-up auto payment.
- Transfer funds between accounts.
- Download or print statements for your tax or personal records.
- Access your account 24/7.
Cons
- Profit-based institutions may mean higher fees. Banks are for-profit entities that are either privately owned or publicly traded. ...
- Less favorable interest rates. ...
- Lower customer service ratings.
Being unbanked means things like cashing checks and paying bills are costly and time-consuming. Those who are unbanked often must rely on check cashing services to cash paychecks because they don't have direct deposit. They also have to pay bills using money orders, which adds time and expense to the process.
What are some cons of the US banking system? ›
The lack of effective bank regulation, the increasing expansion of banks into nonbanking activities, and the rapid growth of bank holding companies are developments which produced catastrophe in an earlier day and which threaten to produce similar results today if current trends in banking continue unchecked.
The biggest risk of online banks is that someone will access your savings or checking account and steal your information and money. This typically happens when your account is hacked by cybercriminals who get your username and password. However, these risks are not limited to banks that operate exclusively online.
Is it a good idea to have an online bank account? ›
Online banks are safe and offer competitive interest rates with few fees. They're a great option for many people, but it ultimately depends on how you prefer to bank. Online bank features may especially benefit users who have low checking or high savings account balances. Do online banks have ATMs?
Should you put your money in an online bank? ›
Bottom line. Online banks often have significant advantages over traditional banks, thanks to perks such as competitive rates, lack of fees, and digital features that can make it easier to manage your accounts and save more money.
Which 2 are benefits of online banking? ›
Check out our top 6 benefits:
- Access your account 24/7. One of the biggest advantages of online banking is that you can access your account 24/7, wherever you are. ...
- Bank on your phone or tablet. ...
- It's quick and easy. ...
- Keep on top of your finances. ...
- Pay bills and make payments. ...
- Transfer money between accounts.
Almost all mobile banking apps today allow you to deposit checks straight from the app by uploading photos of the check. Additionally, you can automatically transfer funds from one account to another in only a couple of steps, as well as send and receive money from other individuals using different accounts or banks.
What are the pros and cons of mobile banking? ›
It makes it easy and convenient to stay on top of your finances, since you can pay bills, send payments, or make deposits all from your mobile device. There are some downsides, however, as mobile banking apps may experience technical issues from time to time and they don't all feature the same functionality.
Is it good to do online banking? ›
Online banks typically offer the best rates and lowest fees of any bank type. Online banks don't offer branches and assume you're proficient with navigating online apps and websites. Read on to compare the pros and cons of online banks. That way, you can choose the right type of bank with confidence.
