Internet banking, also known as online banking, has become increasingly popular over the years due to its convenience and accessibility. With internet banking, you can perform various banking transactions, such as checking your account balances, paying bills, and transferring funds between accounts using a computer or mobile device.
Before deciding to use an online bank for your banking needs, it’s important to understand the pros and cons of internet banking.
What is Internet Banking?
Internet banking is exactly what it sounds like an online bank that doesn’t have physical locations. Instead, it lets you manage your finances over the internet using a mobile phone or a computer.
With an internet bank, you can complete a wide range of financial transactions 一 from transferring funds between accounts to paying bills and depositing checks.
Internet Banking vs. Traditional Banking
One of the major differences between internet banking and traditional banking is location. Online banks lack a physical presence and solely offer banking services through websites and mobile apps. Since operations are purely online, they typically offer lower fees and higher interest rates than conventional banks.
On the other hand, traditional banks service customers through brick-and-mortar locations. Keep in mind that conventional banks offer both online and mobile banking services. However, their online banking services are basic, requiring you to visit your local branch for most services.
The Pros of Internet Banking
The adoption of internet banking is on the rise, and for a good reason. Some of the advantages of online banking include the following:
Convenience
One of the key benefits of digital banking is convenience. Being able to conduct all your transactions at any time, anywhere, is something many people prefer to several trips to a local branch.
Whether you want to pay bills, transfer money between accounts, or check your account balance, you can do this with the touch of a few buttons.
Better Rates and Yields
Most internet banks offer competitive annual percentage yields (APY) on checking and savings accounts. The absence of physical locations means lower overhead costs. For this reason, online banks pass this as an incentive to their customers.
For example, some internet banks offer up to 4% APY, which is way higher than the rates offered by brick-and-mortar financial institutions.
Lower Fees
Since internet banks don’t have the overhead costs that traditional banks have, they tend to have lower fees. For example, many online banks don’t charge monthly maintenance fees, overdraft fees, or have minimum account opening balances.
Of course, you’ll want to read the fine print when shopping for an internet bank to understand which fees you’ll need to pay and which ones are eliminated.
Wider Accessibility
While internet banks don’t offer in-person service, you can access your account anytime, regardless of where you are. Besides, they have customer service representatives and 24/7 online chat to solve your issues quickly.
Many also have a vast network of ATM partners or will cover your ATM fees so you can access your money without having to visit your local bank branch.
Faster Transactions
Compared to traditional banks and credit unions that may require you to queue in bank hallways, transactions are quick and convenient with online banks. You can move money from one checking account to another and deposit checks on the app, eliminating the need to visit an ATM.
Access to Other Features and Services
With internet banking, you can access various additional features, such as money management tools, to help you budget and save money. In addition, some online banks let you get started with investing in stocks and crypto.
The Cons of Internet Banking
Digital banking may seem like a great choice to leave the hassles of traditional baking. However, it has its fair share of disadvantages. As such, you need to weigh the pros and cons of online banking before signing up.
Limited Personal Relationships
Because online banks don’t have physical branches, it doesn’t offer the opportunity to interact with staff at your local bank. Getting to know the staff at your local bank can be beneficial, especially if you need a loan or a particular service that online banks do not offer. With an online bank, you have limited personal relationships with the staff.
Technology Reliant
Online banks rely on technology to offer banking services to their customers. As a result, any technical glitches, server issues, or system crashes can disrupt banking services and lead to delays or financial losses.
Additionally, internet banking requires a stable internet connection, and any interruption can lead to disruptions or delays in banking transactions. Therefore, reliance on technology can be a significant drawback, especially for customers who are not tech-savvy or those who reside in areas with poor internet connectivity.
Cash Deposits May Get Tricky
Although you can deposit a check using your internet bank’s app, it can be challenging to deposit cash because online banks don’t have physical locations.
Depositing money with an internet bank will typically cost more than with a traditional bank. For example, you may have to look for an ATM that accepts cash deposits, which may take time to find, depending on your location.
Privacy and Security Concerns
Given the high rise in online scams, it’s normal to worry about the safety of your personal information and funds when using an internet bank. Cybercriminals can use various tactics, such as phishing scams and malware attacks, to steal sensitive financial information such as login credentials, bank account numbers, and other personal details.
Online banks must regularly upgrade their security software and firewalls to keep hackers and scammers at bay. Customers, on the other hand, must take appropriate measures such as using strong passwords, enabling two-factor authentication, and avoiding suspicious links or emails to protect themselves from these risks.
Is Internet Banking for You?
If you want to earn higher APYs and avoid the tiresome trips to your local branch, an online bank may be ideal for you. However, you don’t have to give up your existing account at your local financial institution. You can decide to keep it open.
Alternatively, you can make a bold move and switch to an online-only financial institution. Switching from a traditional bank to an internet-only bank is easy. All you need to do is shop around for the best online bank with benefits outweighing the cons.
