We do just about everything online these days — shopping, staying in touch with friends, syncing up for work meetings and even dating. So it is only natural that banking should follow suit.
Online-only banks provide many of the same services as traditional banks, but they lack the option of in-person interactions at branch locations, offering websites and mobile apps instead. While banking online boasts the obvious convenience of getting your finances in order without leaving the comfort of your couch, there are some considerations worth noting before switching banks.
What are the upsides of online banking?
Let's start with the pros of online banking, as there are a number worth noting:
The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
Convenience. Perhaps the most obvious benefit of banking online is convenience. Banking this way "is a big time-saver that lets you avoid trips to the bank and waiting in drive-thru lanes or lobby lines," said Bankrate.
Potentially higher interest rates. "At online banks, deposit accounts tend to have higher annual percentage yields," said NerdWallet. For comparison, high-yield savings accounts offered at online banks can offer "APYs around 5%," whereas some of the big brick-and-mortar banks "have savings accounts that earn only 0.01% APY."
Often lower (and fewer) fees. Alongside better rates, "you're less likely to be dinged with a wide range of fees at a direct bank including those associated with keeping an account open with a low balance, making direct deposits or paying by check or debit card," said Investopedia.
User-friendly websites and apps. While of course user experience can vary widely from bank to bank, in general, "most" online banks "have safe, sophisticated websites that make it easy to open an account, pay bills and track and manage your money from anywhere," said Bankrate. Plus, "online-only banks might have mobile apps with more robust features than traditional banks' apps," said U.S. News & World Report.
Are there drawbacks to online-only banks?
As mentioned, banking exclusively online can have its downsides. These include:
No access to certain services. Not only will you not have the option for a face-to-face interaction if you need banking help, you may not be able to access all the same services with an online bank as with a brick-and-mortar bank. Services that may not be available online can include "getting a cashier's check or renting a safe deposit box," said U.S. News & World Report.
Potential difficulties with cash deposits. Since "there are no locations for customers to visit, depositing cash can be challenging," said SmartAsset. Often, you may find that attempting this with an online bank "will cost more time and money than it would with a traditional bank."
More limited product lineup. "The number of products tends to be more limited at online banks," said Bankrate, and "some only offer a few types of accounts," such as checking and savings but no certificates of deposit (CDs) or loans. In other words, if you are hoping to do all your banking in one place, you may need to turn to a traditional bank (though there are some online banks that are exceptions).
-
Why are Trump's health rumors about more than just presidential fitness?TODAY'S BIG QUESTION Extended absences and unexplained bruises have raised concerns about both his well-being and his administration's transparency
-
Earth's seasons have gone wackadoodleUnder the radar It may have impacted biodiversity and evolution
-
How much does it cost to move? Here's how to budget and save.the explainer Factors like move distance and the weight of your furnishings can affect the total cost — but there are several ways to economize
-
How much does it cost to move? Here's how to budget and save.
the explainer Factors like move distance and the weight of your furnishings can affect the total cost — but there are several ways to economize
-
When does a personal loan make sense?the explainer Personal loans tend to be more flexible and versatile than home, auto or student loans
-
Should you downsize for retirement? Here's what to consider.The Explainer Moving to a smaller place may seem easier, but there are also some real benefits to staying put
-
What to do if you want to move but don't want to give up your low mortgage ratethe explainer 30-year mortgage rates are currently averaging 7% — and homeowners who secured rates closer to 3% during the pandemic are reluctant to sell their homes
-
Is hands-off investing the way to go?The Explainer In many cases, your money might be better off left alone
-
What to know before turning to AI for financial advicethe explainer It can help you crunch the numbers — but it might also pocket your data
-
Should you add your child to your credit card?The Explainer You can make them an authorized user on your account in order to help them build credit
-
How will the new Repayment Assistance Plan for student loans work?the explainer The Repayment Assistance Plan (RAP) will replace existing income-driven repayment plans
