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Consumers today have more options than ever when it comes to banking. Some may enjoy visiting a physical branch and interacting with someone face-to-face. Others prefer the convenience of managing their money from the comfort of their own home.
In today's digital age, most banking tasks can be accomplished online. This includes opening accounts, making deposits, transferring funds, and paying bills.
Does that mean you should switch to an online-only bank? There are many reasons to move your banking online, from higher interest rates to enhanced mobile features. Here are four reasons why you should open an online bank account.
1. Convenience and accessibility
You may think you’ll sacrifice convenience when switching to an online bank, but the opposite is true.
An online bank lets you access your accounts and perform banking transactions anywhere, anytime. You can check your balances, transfer funds, pay bills, and perform other banking tasks without needing to visit a physical branch.
You’re not restricted by the operating hours of a physical branch, allowing you to manage your finances on your own schedule. This saves time and eliminates the inconvenience of waiting in line or dealing with manual processes.
Most online banks offer platforms that make managing your accounts a breeze. You can view your transactions, set up automatic payments, and track expenses with a few clicks. This level of convenience is often not as available at traditional brick-and-mortar banks.
2. Lower fees, higher interest rates
By operating only online, many online banks don't have to pay the overhead costs to maintain a physical branch. This allows them to pass on the savings to customers in the form of lower fees and higher interest rates.
For example, the national average annual interest rate on savings accounts is 0.58%, according to Bankrate data. Many big banks have savings accounts that charge as little as 0.01%. Meanwhile, the top high-yield online savings accounts can pay well over 4.5%.
Online banks leverage technology to provide their services. This reduces the need for physical infrastructure and manual labor. These banks also often specialize in specific banking products, such as high-yield savings or online-only checking accounts. This helps them optimize their operations and offer more competitive rates and lower fees.
Keep in mind that interest rates and fees can vary widely between online banks.
3. Enhanced digital experience
Online banks offer a mobile experience that’s more robust and user-friendly compared to traditional banks. They may also integrate with third-party services, letting customers link external accounts, track their spending across multiple institutions, and access a wider range of financial services.
This enhances the overall digital experience, giving customers a more complete view of their finances.
Additional features online banks might offer include:
- Online bill pay: Online banks may allow you to schedule multiple payments at once or set up recurring payments.
- Mobile check deposit: Although online banks don’t have physical locations, you can often deposit paper checks online.
- Global accessibility: Many online banks have a global customer base and support many currencies. This allows you to deposit and withdraw your local currency, wherever possible.
- Budgeting tools: These tools allow you to set limits for different categories, like groceries, gas, or utilities.
- Expense tracking: You can track where your money is going daily, weekly, or monthly.
- Investment services: Some online banks allow you to buy stocks, bonds, and exchange-traded funds. They might also allow linking with your savings account to easily transfer money.
- Personalized recommendations: Online banks may use artificial intelligence to offer personalized recommendations. You may also be able to connect with a human financial advisor, though often for a fee.
4. Security
While you can’t physically see an online bank, that doesn’t mean they’re less secure than traditional banks.
Like traditional banks, online banks have FDIC insurance. This means your money is insured for up to $250,000 per person, per account. So, even if your bank goes under, your money is protected.
Most reputable online banks are very safe and secure. They have strict privacy policies and adhere to data protection regulations. Online banks also focus on protecting customer information, implementing measures to safeguard data from unauthorized access or breaches.
These banks also offer real-time monitoring of account activities and transaction alerts. You’ll often receive notifications about any suspicious account activity. This approach helps mitigate the risks associated with fraudulent transactions.
It’s still essential to practice good financial security habits while banking. This includes using a strong password, monitoring your accounts, and being aware of phishing scams.
What to consider before you switch to an online bank
Though these banks have several advantages, there are a few things you should consider before choosing an online bank.
An online bank’s biggest limitation is a lack of physical branches. This can be a drawback for those who prefer face-to-face interactions or need access to in-person services such as cashier's checks, safe deposit boxes, or personalized help.
Depositing cash can be more challenging with an online bank. Some online banks allow cash deposits, while others provide alternatives like mobile check deposits or partnerships with specific ATM networks. But it’s often not as robust as traditional banks. Plus, you may have to pay added fees when using out-of-network ATMs.
Online banking requires a stable internet connection for accessing accounts and performing transactions. If your internet connection is unreliable or disrupted, it may hinder your ability to manage your finances online.
Online banks may also have limited options for specific services or complex financial needs. They often focus on providing streamlined, standardized services, which may not be best for someone who needs personalized advice.
The bottom line
You can always have bank accounts in both places.
“I've seen many clients maintain some level of cash at their traditional retail banks to manage bills, credit card balances, and cash withdrawals while funneling all excess cash beyond that to online banks so they can earn higher interest rates on the larger portion of their cash,” says Alex Rezzo, certified financial planner at Andante Financial.
Rezzo says this allows his clients to take advantage of the best features of both traditional and online-only banks.
As with any banking product, online-only banks have their share of advantages and disadvantages. Before making any decision, it’s important to consider your banking needs and compare different online banking options to find what works best for you.
Editorial disclaimer: Opinions expressed are author's alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.
Meet the contributor:
Bob Haegele
Bob Haegele is a personal finance writer focusing on topics such as investing, credit cards, and banking. He earned his bachelor’s degree in information technology from Marquette University and began his career in healthcare tech.
