The Pros And Cons Of Online-Only Banking Accounts
It's been a long road from caution to comfort, but consumers are finally accepting that banking online is a safe, simple and convenient way of life.
Traditional banks almost universally offer customers some sort of online access to their accounts for account balances, fund transfers and bill payment. However, several online-only banks have grown in stature to attract customers from their brick-and-mortar counterparts.
Some of the online-only banking options offer attractive features that have made it worth considering a migration from the vault to the Web. To help you make a more informed decision, review some of the pluses and minuses of banking branch-free.
The Upside Of Online-Only Banking
Higher Interest: Banks that operate exclusively through the Internet don't have all the expenses associated with maintaining and staffing physical branches. Because of the lower overhead, these banks often offer higher interest rates than their counterparts with those expenses.
Keep in mind that the "higher" interest rates offered by online-only banks aren't all that high in the current economy.
Fewer Fees: In addition to higher interest, online banks generally have fewer fees tied into day-to-day balances. Most offer basic free checking account services with debit cards linked to them. Checking accounts that accrue interest are often available as well, although they are more likely to come with fees or minimum balance requirements.
Tech Savvy: Because online banks are technologically centered, they are often better about making account data available to customers. If you make an ATM withdrawal at an account tied to an Internet bank, the transaction is likely to show up more quickly than at a bank that posts data at certain times of the day.
Some online banks have also developed Web dashboards and mobile applications that allow users to see sophisticated details about their financial activities and take actions like balance transfers through smartphones.
The Downside Of Online-Only Banking
What are the possible downsides of banking at an Internet-only bank?
No Local Branch: Online bank customers don't have a local branch to stop in or drive by and conduct business. There's no teller that might remember your name or hand out lollipops to the children in the backseat. There is also no account manager at the desk inside to answer questions. The telephone helplines or Web chats offered by online banks can seem frustrating when you are trying to get an answer about your account.
Deposits: Since there is no local branch, there is no drive-through window to stop by and make a deposit. Deposits into online banks have to be made by direct deposit, transferred from another bank account or sent through the postal service. This can be inconvenient for bank customers who have to make frequent deposits of cash or checks.
At least one online bank has addressed this issue by allowing customers to scan the front and back of a check that needs to be deposited, and then upload it for credit. The check doesn't have to be sent through the mail.
The ATM: Banks offer their own customers free use of their ATMs and charge non-customers to access accounts that belong to other banks. Since Internet banks don't have their own teller machines, is it possible for customers to get their cash without paying additional fees?
Most online banks belong to a nationwide network, such as PLUS or Allpoint, and offer free ATM use at those specific machines. The bank websites offer a search function that finds the closest ATM in the free network.
One online bank provides customers with a list of free ATMs and promises to reimburse customers who have to pay other bank's fees at other machines.
Other Financial Services: The large online banks offer more than checking accounts, savings accounts and debit cards. They offer other financial services including special children's accounts, mortgages, money market accounts, CDs and IRAs. There are also options for paying bills online.
Selecting An Online Bank
The websites of the Internet banks spell out what is offered and how much it costs. Customers considering opening an account have to weigh the interest rates and fees, including overdraft charges, against the ease of access of using a branch bank. It's also important to make sure that deposits are protected by the Federal Deposit Insurance Corporation or FDIC. That's the government agency that guarantees a person's deposits at any single bank, up to $250,000. (To learn more about the FDIC, see What You Need To Know About FDIC Deposit Insurance Coverage.)
Minimum amounts to open accounts vary widely at online banks. Some require as little as $25 to begin banking. Others require account balances to begin at $2,500.
Some of the large players in the Internet-only banking world are ING Direct, the First Internet Bank of Indiana, Discover Bank and Ally.
The Bottom Line
Banking customers who enjoy managing money online and are comfortable with technology may appreciate the lack of fees, the slightly higher interest rates and the online tools that come with virtual banks.
The trade-off is that it can be harder to make a cash or check deposit into an Internet-only bank. Customers also may find it more challenging to get cash from an ATM without paying extra fees. For some, the solution may come in maintaining a secondary account at a bank with a local physical location to use as a deposit point when needed, and maybe as a place to stash some cash that could be accessed at any time.
If you are thinking about moving your money to an online-only bank, keep these considerations in mind. Knowing the pros and cons associated with online banking will help you to make the best decision.