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Key takeaways
Online banking services may offer better interest rates on your savings and charge fewer fees than traditional banks.
Two major benefits of online banking are convenience and 24/7 access to your money right from your phone.
The main drawbacks include the lack of physical branches for in-person help and potential challenges with depositing cash.
Reputable online banking platforms use security features like encryption and provide FDIC insurance on your accounts to protect your money.
Online banking is a popular way to manage money, but it's smart to consider the pros and cons. Benefits include potentially higher APYs, fewer fees, and 24/7 access to your accounts. Potential downsides include a lack of physical branches, no in-person support, and potential challenges with depositing cash.
By reviewing the pros and cons of online banking, you can determine whether it's the right choice for your financial journey.
What is online banking?
So, what's the deal with online banking? Simply put, it's banking without the brick-and-mortar buildings. Instead of visiting a branch, you manage your money through a website or mobile app on your phone.
Banking online lets you handle a ton of financial tasks from pretty much anywhere. Common services include:
Depositing checks with your phone's camera
Paying bills online
Many online banks offer a full range of financial services, including checking and savings accounts, automatic bill payments, loan management, and budgeting tools. Although you can't speak to customer service in person, you can usually get support over the phone, via email, or through web chat.
Pros and cons of online banking at a glance
Pros of online banking | Cons of online banking |
|---|---|
Higher rates | No in-person service |
Lower fees | Depositing cash can be tricky |
24/7 convenience and accessibility | Limited complex services |
Helpful financial tools |
Pros of online banking
Banking online comes with a variety of helpful perks. Let's break down the biggest advantages.
Higher rates and lower fees
Because online banks often don't have the costs of running physical branches, they may pass those savings on to you. This can lead to the following benefits:
Higher interest rates on your savings accounts
Fewer (or no) fees, such as monthly maintenance, ATM, account service, or overdraft fees
You may find high-yield savings accounts with annual percentage yields (APYs) well above the national average. These rates will help your savings grow with no extra effort on your part. Plus, every dollar not spent on fees is a dollar you can put toward your savings goals.
24/7 convenience and accessibility
When you bank online, you don't have to worry about "bankers' hours." With online banking, your accounts are accessible 24/7.
As long as you have access to your online account or mobile app, you can check your balance, transfer funds, or pay a bill at midnight or on a Sunday from the comfort of your couch. Online banking fits your schedule, rather than the other way around.
Helpful financial tools
Many online banking apps offer useful features designed to simplify your financial life. These may include:
Automatic savings tools that help you save without thinking about it
Services that can help you build your credit history with everyday purchases
Tools to track your budget, monitor your credit score, or request a paycheck advance
Cons of online banking
Online banking offers many benefits, but it's not the best option for everyone. Here are a few potential downsides to consider.
No in-person service
If you value face-to-face conversations with a banker, online banking might feel too impersonal. For complex issues or services like getting a cashier's check, you can't walk into a branch for help. Customer service is usually handled over the phone, via web chat, or through email.
You may also need to complete an online form to request documents or update your account. If you prefer to work in person with your bank, you may prefer a traditional bank with local physical locations.
Depositing cash can be tricky
Depositing a check is easy with mobile apps, but depositing cash can be tricky. Some online banking services don't accept cash deposits. Others require you to use a specific ATM or a third-party service at a retail store, which may carry a fee.
This could be a big downside if you handle a lot of cash. Before picking an online bank, find out about any hoops you have to jump through to deposit cash into your account.
Limited complex services
Traditional banks may offer a wider range of complex financial products than online banks. These could include:
Mortgages
Wealth management services
Business loans
While some online banking platforms offer a wide array of services, others might not be a one-stop shop for all your financial needs.
Is online banking safe?
As long as you pick a reputable institution, online banking is safe. Financial technology (fintech) companies and online banks take security very seriously, using tools like data encryption and multi-factor authentication to protect your account from unauthorized access.
When searching for a bank, prioritize one that offers FDIC insurance on its own or through partner banks. This insurance means your money is protected by the federal government up to $250,000, just like it would be at a traditional bank.1
Is online banking right for you?
Ultimately, choosing between online and traditional banking comes down to what you value most. If you're drawn to the idea of higher interest rates, lower fees, and managing your money anytime, anywhere, an online option could be a great fit. But if you frequently deposit cash or prefer in-person support, you might want to stick with a traditional bank.
You could also take a combination approach and use both – there's no wrong answer here. Learn more about online banking vs. traditional banking to help make the best decision for you.