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 positives and negatives of online banking? ›
Online banks make it quick, easy and convenient to manage your money wherever you are in the world. All you need is a device and an internet connection. But they do have their downsides, including lack of in-person customer service, the option to deposit cash and potential security risks.
What are pros and cons of e banking? ›
The lack of overhead gives internet banks advantages over traditional banks, including fewer or lower fees and accounts with higher APYs. Internet banks lack personal relationships, no proprietary ATMs, and more limited services.
What are 5 risks of online banking? ›
Due to the open nature of the Internet, all web-based services such as YAB's Online Banking are inherently subject to risks such as online theft of your User ID/UserName, Password, virus attacks, hacking, unauthorized access and fraudulent transactions.
What are the pros and cons of having 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.
Are there disadvantages of online banking? ›
Some disadvantages of online banking include: No physical branches when you need help. Challenging cash deposits. No access to foreign currency.
What is the major disadvantage of online banking? ›
Cons of online banks
Customer service can be virtual and impersonal. You are more likely to incur ATM fees if the online bank has no ATM network or is part of a small network. You can't deposit cash unless the bank is linked to ATMs that accept cash. The number of products tends to be more limited at online banks.
What are two reasons to not use online banking? ›
- Customer service lacks personal touch.
- Not an option for those lacking access to the internet.
- ATM options may be limited.
- Greater due diligence required to vet the bank.
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.
The biggest risk of online banking is that someone could access your account by getting their hands on your username and password, hacking your account, exposing you to a virus, or using your debit or credit card to make a purchase. These risks exist for online and traditional banks offering online banking services.
Mobile banking or any other activity that exposes your sensitive data should never be done on public Wi-Fi. If a hacker is monitoring the public Wi-Fi or hotspot you are using, they could potentially intercept the data being transferred to and from your phone and use it to access your banking account.
Are online checking accounts safe? ›
The Federal Deposit Insurance Corporation (FDIC) protects consumers against bank failure. Most online bank accounts are FDIC insured. In the unlikely event your bank goes out of business, the FDIC must recover up to $250,000 per account per bank. Joint accounts are insured up to $250,000 per co-owner per bank.
Which bank has safest online banking? ›
Our picks for the best online banks are SoFi Bank, Discover Bank, Ally Bank, Varo Bank, LendingClub, Upgrade, Alliant Credit Union, FNBO Direct, Zynlo Bank and Quorum Federal Credit Union. You may get a higher annual percentage yield (APY) compared to traditional banks when you choose an online-only bank.
What is the best online bank? ›
Bankrate's best online banks of 2024
- Top online bank: Quontic.
- Top online bank: LendingClub.
- Top online bank: CIBC USA.
- Top online bank: First Internet Bank of Indiana.
- Top online bank: Rising Bank.
- Top online bank: Varo Bank.
- Top online bank: Bank5 Connect.
- Top online bank: Discover.
If your online bank is part of an ATM network, you can deposit cash into your online account via a linked cash machine. You can also consider getting a reloadable prepaid debit card that you can deposit cash onto and link it to your online bank account.
What is an online bank account? ›
Online banking allows you to conduct financial transactions through the Internet. Online banking offers customers almost every service traditionally available through a local branch including deposits, transfers, and online bill payments.
What are 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.
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.
Net banking provides a secure environment for conducting banking transactions. Customers have a unique login ID and password for their account. Net banking enables customers to apply for loans or insurance online. Customers can manage their debit/credit cards and update addresses through internet banking.
