Note: This article is part of our Basic Banking series, designed to provide new savers with the key skills to save smarter.
While traditional banks continue to operate brick-and-mortar branches, many elements of consumer banking have moved online. With a smart device and an internet connection, you can deposit a check, transfer money between accounts or check your balance, eliminating time-consuming trips to the bank.
“Twenty-four-seven access to your accounts is a major benefit to online banking,” said Rachel Kampersal, a marketing communications and programs associate with American Consumer Credit Counseling in Auburndale, Mass. “This allows consumers to remain connected to their finances anytime, anywhere.”
5 benefits of online banking
Convenience. Need to check whether a transaction has cleared? Pull up your bank account online for the answer. Want to deposit a birthday check? Upload a picture of it to your bank’s app. Online banking offers unprecedented convenience for consumers. Regardless of where you are, as long as you have access to the internet, you can manage your financial transactions and your bank account.
Typically higher interest rates. Online bank accounts tend to have significantly higher interest rates than you’ll find at a physical bank branch. For example, an analysis by MagnifyMoney (a LendingTree company) found that most checking account rates at brick-and-mortar banks had an annual percentage yield (APY) of around 0.01%. That translates into a yield of 50 cents annually on a $5,000 deposit. A high-yield online checking account, on the other hand, could have a 2.00% APY and earn about $100 a year.
Typically lower fees. Online banking has much less overhead than a brick-and-mortar operation, and some of the savings can be passed on to consumers. That means online bank accounts generally have few or no fees, such as monthly maintenance charges on savings, and often do not require minimum account balances or charge transaction fees. Some big banks may charge small fees, such as $5 a month, for maintaining a savings account.
Immediate transfers. Whether you need to repay a friend for a concert ticket or move a large sum from checking to savings, online banking transfers sometimes happen almost immediately. Online accounts allow consumers to move money quickly between their own accounts, between financial institutions and between some business and personal accounts — without ever stepping foot in a branch or physically handling a check or cash. Some big banks are even offering services similar to Venmo and PayPal where consumers can send money to friends through a mobile app.
Better services. Managing your personal finances is often simply easier with online banking thanks to the multiple services available from a mobile app or banking website. With a few clicks, you can view your online bank statements, have your paychecks directly deposited into your account, set up automatic bill pay and keep up with your account status in real time. The benefits are significant — you’ll save paper, save time, never miss a bill payment and stay on top of your personal finances.
The drawbacks of online banking
No in-person banker relationship. While taking the bank building out of the equation has made online banking efficient and convenient, one drawback is that it has removed the human factor. Consumers who bank online have no opportunity to build a relationship with a banker, who can provide assistance with your banking needs. With online accounts, customer service typically is relegated to a phone call or searching the bank’s online “frequently asked questions” section.
“If you’re facing a problem with your account, that can be a serious issue that you want to resolve ASAP,” Kampersal said. “With no in-person option that brick-and-mortar banks offer, consumers can be left waiting for a reply or sifting through online answers rather than speaking directly to a teller [or] customer service representative.”
Security. Because the internet is a public space, any personal information that you provide to a website could potentially be hacked, stolen or otherwise compromised. Not all online banking systems provide the same levels of security, and it’s important to make sure that the one you choose protects your account. The FDIC recommended consumers learn about their online bank’s security practices, including whether it encrypts information, and secure their own computers with virus protection.
Some services not available. Online banking has revolutionized how people manage their personal finances, but there are some services that just don’t translate to the internet. If you want to get a document notarized, for example, you’ll still have to visit an actual notary at a branch. You also may have to go to the bank for cashier’s checks and money orders or to open a safety deposit box.
How to keep your online bank account safe
It’s imperative that you do what you can to protect your online bank account from fraud and theft. Here are some steps you can take.
Use a complex password and change it regularly. The FDIC recommended selecting a password that is unique and does not include birthdates or other words and numbers that a thief might guess. Be sure to change your password often and be prudent about who you share it with.
Check your accounts regularly. Monitoring your accounts will keep you familiar with the flow of transactions and help you quickly recognize any transaction that is in error or seems odd. If you do find a transaction that appears fraudulent, such as a charge from a shop you’ve never purchased from, immediately contact your bank.
Clear cookies if you use a public computer. It’s safest to make online bank transactions on a computer with a secure network. “On public Wi-Fi, it’s possible for hackers to gain access to your account,” Kamersal said. If a public computer is your only option, clear cookies (small files computers save that may track where you’ve browsed) before you log off.
To maintain security for your online banking, Kampersal also recommended enabling alerts that tell you if your account has been accessed from a new device. You should also consider using any multi-factor verification your online bank offers, such as security questions, fingerprint IDs and text-authentication codes.
The bottom line on online banking
The benefits of online banking can make it a game-changer, both freeing up time you’d normally spend at a bank branch and allowing you to regularly monitor your finances. While you may still visit a branch occasionally if you need a notary or other brick-and-mortar-only service, the convenience, savings and ease of online banking make it an excellent option for managing your finances.