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:
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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).
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