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Banking Basics

Pros and Cons of Internet Banking

Figuring out where to bank starts with a decision on whether traditional or online banking is right for you. Learn about the pros and cons of internet banking.

Katana Dumont • August 20, 2022

In This Article

  1. What is online banking? 🤔
  2. Pros of online banking 🙃
  3. Cons of online banking 👀
  4. Should you open an online bank account? 🤑

With the steady rise of internet banking, also known as online banking, you can now do your banking without ever leaving home. On top of convenience, online banks offer a ton of other perks— like higher interest rates and lower fees.

Deciding where to bank starts with understanding the type of institution you want. For example, would you rather have a bank you can walk into with its own ATMs, or an online-only alternative that gives you a fully online or mobile banking experience?

Although online banks and brick-and-mortar banks have a lot in common, there are some key differences. If you’re on the fence about internet banks, keep reading to explore more of the pros and cons!

What is online banking? 🤔

Let’s begin with the basics. Online banks operate without branches and give you the ability to manage your bank account information over the internet using a computer or mobile phone. Online banking services allow customers to handle a range of financial transactions—from transferring funds and depositing checks to paying bills electronically (sometimes called bill pay).

While traditional banks and credit unions with branches also typically let customers access their account statements (or e-statements) via the internet, the major difference here is that online banks offer primarily mobile access. You won’t meet a banker face to face, but with a mobile device or computer, you can access your account anytime.

Pros of online banking 🙃

Higher rates 

Online banks tend to have higher rates compared with traditional banks. Since they don’t have to spend money on maintaining physical locations, internet banks are able to offer the highest interest rates for checking and savings accounts. The best online savings accounts, for example, have APYs around 1.50%. Compare that to the national average savings rate of 0.05%, and some of the largest brick and mortar banks have savings accounts that earn only 0.01% APY—a gap that can really add up with a high account balance. Most online banks also offer certificates of deposit (CDs), and no-penalty CDs for early withdrawal.

Lower fees

Another advantage for online banks not needing to worry about branch maintenance is that they tend to have low or no fees. That means you’ll be less likely to pay monthly service fees or overdraft fees, or fees associated with paying by check or debit card, to name a few. To compare, accounts at large brick-and-mortar banks often charge monthly service fees around $10, though they may waive them if you meet certain requirements, such as having a $1,500 minimum balance.

Better for the environment

By receiving all your banking correspondence by email or text, online banking drastically reduces the amount of paper you use. Storing and keeping track of information is simple with a USB stick or saving records virtually in the “cloud.” And you can access this info easily  if you need to produce records for tax purposes. So you can feel good about banking online—when it comes to doing your part to better the planet.


Traditional banking hours aren’t always convenient, but with online banking, you can access your bank accounts and bank services wherever there’s internet — on your computer or mobile device — any time. You can also reach customer service by phone — in many cases, 24 hours a day, seven days a week.

Quick and convenient transactions 

When it comes to easily depositing or transferring money, online banks have traditional banks beat. You can transfer money from another checking account or savings account to your online bank and deposit checks using an app, eliminating the need to find and get to an ATM. A 2018 Bain and Company survey of retail banking customers found traditional banks lagged behind direct banks in the areas that mattered to customers most, including the quality of the banking experience and the speed and simplicity of transactions.

Cons of online banking 👀

No physical branches

A traditional bank provides the opportunity to have face-to-face interaction with the staff at your local branch. That can be an advantage if and when you need additional financial services, such as a loan, or when you have to make changes to your banking arrangements. In addition, many traditional banks provide special promotions for mortgages, auto loans, and credit cards to their existing customers. With an online bank, you’ll likely have limited access to in-person help and less opportunities to build those personal relationships.

Cash deposits can be a challenge

Depositing a check is possible with an online bank by using its mobile banking app to capture both the front and back of the check. However, depositing cash can be kind of inconvenient at many online banks. For example, you might have to find a deposit-accepting ATM. Or you may need to put money into a traditional bank account and transfer funds to your online account. You could also use cash to buy a money order, and then deposit it electronically using your online bank’s mobile app. Some banks also partner with a third-party service, such as Green Dot, to let retailers and convenience stores accept cash deposits. But these services typically charge fees of around $5 for deposits. So, if this is something you plan to do frequently, it’s worth checking the bank’s policy.

You can’t get foreign currency

International transactions may not be possible with online banking, meaning you wouldn’t be able to exchange United States currency for another country’s currency. However, online banks may make up for this by offering free ATM usage abroad as well as reimbursement of exchange fees.

Should you open an online bank account? 🤑

Traditional and online-only banks both have their advantages. If you want higher rates, lower fees and don’t need frequent in-person banking services, an online bank may be ideal for you. Keep in mind, you can choose to open an online account without giving up an existing account at your local financial institution. In fact, having accounts at both a traditional bank and an online bank could give you the best of both worlds.

If you’re thinking of making the move to an online banking option, here’s how you can switch to Chime in 5 easy steps.

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