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Online banking is one of the greatest things to happen to personal finance.
Not only do you have access to your bank account anywhere you are, but you earn higher interest rates and avoid fees as well.
In this post, I highlight the pros and cons of online banking you need to know.
By having all this information, you will be able to decide if online banking is for you, and how to make the most of it.
10 Pros And Cons Of Online Banking You Need To Know
5 Advantages Of Online Banking
Here are the biggest benefits to online banking and why you should consider opening up an account today.
#1. No Trips To The Bank
With an online bank, you can say goodbye to trips to the bank for the most part.
This is because you will have your paychecks electronically deposited into your bank account and you can pay your bills from your account as well.
If you get a personal check, you can use the mobile check deposit feature to deposit the check in your account.
If you need balance information, you just log into your account, and if you need support, you can email or call the bank.
The only time you will still need to go to the bank is to deposit cash since no online banks allow you to deposit cash.
Finally, most internet banks offer ATM access through a large ATM network.
They partner with other companies to offer ATM services nationwide.
#2. Simple To Get Started
Opening up an online bank account is easy to do.
Just pick the bank you want to use and fill out the online application.
You will need to enter in personal information, including your full legal name, address, date of birth, and Social Security Number.
This is because of the Patriot Act.
Usually in a few minutes, the bank will verify who you are and have an account set up for you.
All that is left for you to do is set up electronic or ACH transfer instructions to move money into and out of your new bank account.
Once you have one account opened, opening a second account is even easier as they already have verified who you are.
And with a mobile banking app you can do all your banking on the go.
#3. Multiple Bank Accounts
One of my favorite features of internet banks is the fact that I can have multiple online savings accounts.
I do this because I have a separate account for each of my savings goals.
So I have an emergency fund, as well as a vacation fund, a gift fund, and a long term savings fund.
I also have savings accounts for non-monthly bills like auto insurance premiums, annual life insurance premiums, and others.
By keeping everything in a separate savings account, I can see instantly how much money I have saved for each goal.
While I can have multiple accounts with traditional banks, it’s not as easy to keep track of each account unless I have online access.
And even so, their website usually is harder to navigate.
The other benefit is I earn a higher interest rate on my savings as well.
#4. Minimum Fees
If you have ever banked with a traditional brick and mortar bank, you know they are not shy when it comes to charging fees.
You will typically find the following fees:
- Monthly Maintenance Fee
- Other Monthly Service Fees
- Low Balance Fee
- ATM Fees
- Overdraft Fee
- Account Inactivity Fee
And these are just a handful of the more common fees banks charge.
Many times you can avoid these fees, but you have to jump through a number of hoops.
This includes setting up direct deposit, using your debit card a certain number of times every month, and meeting minimum balance requirements between deposit accounts and loan accounts.
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Who wants to go through this hassle every month?
With online banking, there are very minimal fees, if any.
#5. Higher Interest Rates
Another great benefit to online banking is higher interest rates, not only on high-yield savings accounts, but also on checking accounts.
The reason online banks can pay higher rates is because they don’t have the overhead expenses related to physical branches and employees.
They can pass these savings to account owners in the form of higher interest rates.
5 Cons Of Online Banking
There are drawbacks to online banking.
Here are the biggest downsides you need to be aware of.
#1. Can’t Deposit Cash
I’ve been using an online bank for close to 20 years now and by far the most frustrating part is the fact I unable to make cash deposits.
If I have cash, I either have to keep it at home or I need to drive to my local bank where I have an account, deposit the money, and then set up an electronic transfer online to my internet bank.
I am surprised that there still is not a solution to this problem.
If this issue could be resolved, I think many more people would switch to using internet banks.
The only solution I have found thus far is to online bank with one of the largest banks.
This way you can have all the advantages of internet banking, but still visit physical locations to deposit cash.
Additionally, with many of these banks, if you have a bank branded ATM machine near you, you can usually make cash deposits though these machines.
#2. No Branches
Related to the point above, there are no branches for online banks.
So if you need help with a wire transfer or other financial transaction, you need to call or email customer service.
With high quality banks, this isn’t an issue as they make it a point to have top notch customer service.
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But if you opt for a lesser known online bank, you run the risk of having frustrating experiences with their support team.
#3. Limited Offerings
With most banks, you can have a checking account and savings account, as well as a certificate of deposit.
You might even have your mortgage or auto loan through them too.
Having everything in one place, makes things easy.
You can transfer money quickly and pay bills fast.
With online banks, many don’t offer all these services.
Sure you can have checking and savings accounts, and some do offer certificates of deposit.
But not all offer loan products.
While this can be annoying, to be it’s not the worst thing.
The reason being is there are many fintech companies offering loans at very competitive rates these days.
So by having to go and shop for a loan, chances are you are going to get a better rate than if you simply settled for your current bank.
#4. Possibility Of Identity Theft
There are a lot of scams out there and phishing scams with online banking is high on this list.
You will get an email or phone call from what looks like you bank, asking you to provide personal information.
If you do, you are giving your information to a scam artist who is going to steal your identity.
The sad reality is, even if you don’t online bank, you are going to get these emails and phone calls.
I get an email almost daily about someone trying to gain access to my Bank of America account.
The thing is, I don’t have a Bank of America account.
The most important thing to remember is to never reply to an email from a bank and never give out your personal information if someone calls you.
You should log into your online bank account and send an email through the website.
And never click the link in the email to go to the bank’s website.
Open a new browser and type in the URL.
For phone calls, hang up and find the banks phone number on their website and call that number.
If you do these things, along with having a strong password, you shouldn’t have to worry about online fraud.
#5. Website Changes
This drawback to online banking isn’t a deal breaker, it’s just annoying.
You know how every now and then, your favorite website decides it needs a refresh and gives itself a makeover?
Online banks do this as well.
In many cases, it’s not an issue.
But other times they change the place where links were, or move things around and it takes me an extra 5-10 minutes to find where everything is.
Like I said, it’s not a deal breaker, but it is something I find irritating.
There are the 10 pros and cons to online banking you need to know.
I’ve been online banking for 20 years now and love the convenience of it, along with the higher interest rates.
But I still keep an account at a local bank branch because of the issue with depositing cash.
I recommend you look into online banks as the benefits easily outweigh the risks.
Just be sure to have an account at a local bank or credit union so you can deal with the issue of cash.