Chime® is a financial technology company, not a bank. Banking services provided by The Bancorp Bank, N.A. or Stride Bank, N.A., Members FDIC.

Pros and Cons of Online Banking

Timothy Moore • November 20, 2024

Internet banking, also known as online banking, has become a popular way to manage your money. With an online savings account or online checking account, you can do all your banking from the comfort of your couch.

Online banking offers more than just convenience. Some of the top perks of online banking include higher interest rates and lower fees.

But brick-and-mortar banks still make sense for some consumers. Choosing between in-person and internet banking is a key decision on your journey to leveling up your personal finances.

So ,what are the pros and cons of online banking? And is it the right move for you? Let’s dive in.

Easy online banking
  • Checking Account with no monthly fees
  • 50,000+ fee-free ATMs~
  • Chime Visa® Debit Card
Get Started

What is online banking?

Online banks operate without branches and allow you to manage your bank account information over the internet using a computer or mobile phone. Online banks typically have a convenient and easy-to-use mobile banking app– so you’ll never miss the days of getting in-person help at a branch.

They allow you to handle a range of financial transactions from home or on the go – functions that you may have previously had to do in person. Some of these online banking features include:

However, online banks don’t corner the market on these features anymore. Many traditional banks and credit unions now let customers access their account statements (or e-statements) online. Some have even started to add other mobile banking features to their services to keep pace with online banks.

That means online banks often may differentiate themselves with newer app features, higher APYs on checking and savings accounts, and lower (or no) fees.

Traditional bank vs online bank

A traditional bank has brick-and-mortar locations. An online-only bank offers its services, products, and customer support on a digital platform. Traditional banks usually have lower interest rates and higher fees but can also offer a greater suite of banking products. Online banks typically feature competitive interest rates, low or no-fees, and may offer automated savings features.

5 pros of online banking

To help you decide whether an online bank or traditional bank is better for you, you’ll want to get your head around the pros and cons of online banking. Let’s start with the perks:

1. Higher rates and lower fees

Since internet banks don’t have to spend money on maintaining physical locations, they may offer higher interest rates for savings and checking accounts than traditional banks.

For instance, high-yield savings accounts from online banks might have a higher interest rate. Many online banks also offer certificates of deposit (CDs) with high interest rates, including no-penalty CDs for early withdrawal.

Online banks also have the upper hand when it comes to fees. Because they have fewer overhead costs than traditional banks, online banks often charge lower fees – or no fees at all. That means you’ll be less likely to pay monthly service fees, foreign transaction fees, overdraft fees, and ATM fees, to name a few.

2. Safety online banking features

Are online banks safe? The short answer is yes. Online financial institutions come with many safety features to protect you and your money. When considering an online-only bank, look for the security measures it has in place.

Many online banks use tools like multi-factor authentication, encryption, and firewalls. They may also require using secure browsers to protect your data from hackers.

Along with looking for features like these, make sure the bank is FDIC-insured. When a bank has federal deposit insurance your accounts up to $250,000 are covered.

3. Fee-free overdraft

Brick-and-mortar banks have considerable operational expenses that online banks don’t. With an online bank or online financial institution, fees can often be kept to a minimum because of the lower overhead costs associated with an online business. You can potentially save on fees that most traditional banks would charge their customers, like overdraft fees.

To avoid this fee, consider switching to an online account with fee-free overdraft protection. Some online accounts, like those through Chime, offer their own version of overdraft protection that safeguards members from any payments or withdrawals that would result in a negative balance.

4. Built-in automatic savings

When switching to an online banking service, look for one with an automatic savings feature. This feature allows you to automatically set up fund transfers from your online checking account to your online savings account. You can also transfer a portion of your paycheck directly into your online savings account.

5. Credit-building features

Building credit can take time, but if you look for an online account with built-in credit-building features, you can speed up the process. Look for features that turn your everyday purchases into credit-building opportunities.

A few online banks and financial institutions offer credit-building support. When you’re on the hunt for credit-building features, look out for things like cash-advance features, automatic balance payments, and credit bureau reporting.

3 cons of online banking

Now that we’ve gone over the perks of online banking let’s walk through some of the potential disadvantages.

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 helpful if 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 fewer opportunities to build those personal relationships.

Cash deposits can be a challenge

Online banks make depositing a check from your phone easy, but cash can be a little trickier.

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 and deposit a money order electronically using your online bank’s mobile app.

You can’t get foreign currency

International transactions may not be possible with online banking, meaning you wouldn’t be able to exchange US dollars for another country’s currency.

However, some online banks compensate for this by offering free ATM usage abroad and reimbursement of exchange fees. For example, Chime doesn’t charge foreign transaction fees.

Open an online bank account

Traditional and online-only banks both have their advantages. If you want higher rates and lower fees and don’t need frequent in-person banking services, an online bank may be ideal for you.

You can open an online account without giving up an existing account at your local financial institution. Having accounts at both a traditional and online bank could give you the best of both worlds.

Ready to open a new account? Find out what you need to open a bank account.

Easy online banking
  • Checking Account with no monthly fees
  • 50,000+ fee-free ATMs~
  • Chime Visa® Debit Card
Get Started