Online banking has become very popular for simple banking transactions. These banks can make actively managing your financial life much easier. With an internet bank, you’ll be able to monitor your accounts, pay bills, and transfer money, all with the click of a button.
But if you’re considering online banking, remember that internet (or “direct”) banks are not always a viable substitute for brick-and-mortar banks in all cases. To help you decide whether to switch to online, stay with traditional banking, or do a combination of both, let’s examine the advantages and disadvantages of internet banks.
Advantages of Internet Banks
1. Convenience. Direct banking institutions are open for business anywhere there’s a web connection. Other than times when website maintenance is being performed, they’re always open. Your account balance and information are can be accessed with a just few keystrokes.
* Even when Internet service isn’t available, customer service is typically available 24/7 via telephone.
2. Better Rates. Infrastructure and overhead costs are minimal and allow Internet banks to pay higher interest rates on savings accounts while charging lower loan and mortgage rates. There are even accounts with no minimum balance or service fees that can be opened without a minimum initial deposit.
3. Extensive services. Internet banks normally have better quality websites than traditional banks, with more comprehensive content. Such features can include functional budgeting and forecasting tools, online financial planners, investment analysis tools, trading platforms and loan calculators.
4. Banking on-the-go. Internet banking now almost always includes mobile capabilities. New applications are continuously being created to further expand and improve this capability on smart phones and other mobile devices.
5. Transfers. While traditional banks do allow funds to be moved via electronic transfer, often there is a fee. Most internet banks offer unlimited transfers at zero cost. This even includes transfers to outside financial institutions. They also accept authorized direct deposits and withdrawals, such as payroll deposits and automatic bill payment.
6. Ease of Use. Online accounts are quite easy to set up and don’t require any more information than a traditional bank account. If you don’t want to complete the application online, the forms can be downloaded and mailed. Online checks are actually easier to use, since the payee information is automatically saved for future use.
Disadvantages of Internet Banking
1. Personal connections. A regular bank does offer a better opportunity to develop a personal relationship. These connections can help when you need a loan or other special service. Your local bank manager also has some discretion when you’d like an overdraft fee removed.
2. Transaction issues. Complicated transactions and large cash transactions can be challenging with an online bank. Most Internet banks don’t have their own ATMs, though some have begun to form network alliances with traditional banks. But in most cases, ATM use is going to cost you.
3. Available services. Some Internet banks may not have the full range of financial services that a traditional bank has, such as insurance offerings and notarization.
4. Security. Internet banks are required to obey the same laws and regulations as a traditional bank, and the FDIC insures the bank accounts. However, having electronic access to your accounts always carries some additional risk to your data, regardless of whether you’re using a traditional bank or an Internet bank.
As with anything else, there are advantages and disadvantages to both online and traditional banking. Your ultimate solution might be to utilize both types of banks. Use the points above to consider your own situation to help you make an informed decision.