Online checking accounts offer a convenient alternative to keeping your money in a brick-and-mortar bank. You maintain an online checking account with a computer or smartphone, and you can open it, check your balance, pay bills and transfer money between accounts without setting foot in a physical location. You can even deposit a check or cash without going to a branch. Smartphone apps enable you to deposit a check by taking a picture of both sides of it.In addition,many online banks contract with ATM companies so that customers can use their machines to make cash deposits.
Key Takeaways
- While online checking offers advantages over traditional physical banks, consumers should be aware of certain disadvantages.
- Online checking permits you to open an account, check activity, pay bills and transfer money without visiting a branch.
- Customers may miss interacting with a teller face-to-face. Online banking also means being vigilant about protecting your login credentials.
Online Checking Accounts Offer Higher Yields and Lower Fees
Online banks have less overhead than their brick-and-mortar counterparts, and most pass those savings to their clients in the form of higher yields and lower fees. As of May 2023, the U.S. average annual percentage yield (APY) for checking accounts is 0.07%, according to the Federal Deposit Insurance Corporation (FDIC). However, online banks can be found offering checking accounts with APYs of 3% and higher. Another big draw for online checking is its low fees, also a result of overhead savings being passed on to the consumer. Because online banks typically do not maintain dedicated ATMs, many reimburse their customers for the charges they incur making out-of-network withdrawals.
Attractive High-Tech Features of Online Checking Accounts
High-tech features, such as budgeting assistance and compatibility with personal finance software such as Quicken and Microsoft Money, are another big draw to online checking accounts. Manyenable you to set up automatic weekly or monthly transfers of a set amount of money to or from other accounts. This service can help you stick to a monthly budget or build your savings. Another popular feature is the automatic downloading of account information to personal finance software, which also helps with budgeting and can make filing your taxes much less arduous.
Drawbacks of Online Checking Accounts
Before signing up to make the switch, understand that online checking accounts come with a few drawbacks, including not having access to face-to-face customer service. Sitting down with a personal banker at your local branch can make it easier to deal with any issues that arise with your account. With online banking, however, the best you can hope for is a call center representative at a toll-free customer service number. Some online banks offer 24-hour customer service by phone, while others limit their customer service to normal business hours.
Online security is another concern. Few things are more sacred than your banking information, and few things can cause you more trouble if it falls into the hands of an unscrupulous person. Though most online banks provide encryption software and high-tech site security, cybercriminals have used malware to infect online banking customers’ browsers and steal login and password information. Keeping your computer and mobile devices free of malware and viruses is paramount if you maintain your checking account online.
Are online banks covered by FDIC insurance?
Yep. In their words: "The FDIC provides insurance for the funds that you deposit in FDIC-insured banks. This means that, if your FDIC-insured bank fails, the FDIC will protect you against the loss of your insured deposits whether the bank is brick and mortar or online-only."
Do online or traditional physical banks offer better interest rates on checking?
Since online banks pay less overhead than brick-and-mortar rivals, most pass those savings to their clients in the form of higher yields and lower fees. While most banks offer around 0.07% in interest, online banks can be found offering checking accounts with APYs of 3% and higher, as of May 2023.
What are online checking accounts' disadvantages?
Customers may miss interacting with a teller or bank manager face-to-face. Online banking also means being vigilant about protecting your login credentials and not falling victim to online scams.
The Bottom Line
Trading your brick-and-mortar bank for an online checking account has pros and cons. The pros include higher yields, lower fees, and high-tech features that help with account maintenance and budgeting. The cons include more difficult access to customer service, as well as online security concerns. Ultimately, you have to decide what’s right for you.
FAQs
The Bottom Line
What are the pros and cons of online savings accounts? ›
Despite the rising virtual presence of traditional banks, online-only competitors still offer some clear advantages for consumers.
- Better Rates, Lower Fees.
- Better Online Experiences.
- No Personal Relationships.
- Less Flexibility With Transactions.
- The Absence of Their Own ATMs.
- More Limited Services.
Online banks make it quick, easy and convenient to manage your money wherever you are in the world. All you need is a device and an internet connection. But they do have their downsides, including lack of in-person customer service, the option to deposit cash and potential security risks.
What are the cons of a checking account? ›
Potential downsides to most types of checking accounts can include: Usually does not earn interest. Monthly service fees. Overdraft fees.
What are the pros and cons of traditional banking? ›
In conclusion, traditional banking offers a range of advantages such as personalized customer service, physical branches, and a sense of security and trust. However, it also has its drawbacks, including potential fees, limited accessibility, and lengthy processes.
What are the cons of online banking? ›
Cons of online banks
Customer service can be virtual and impersonal. You are more likely to incur ATM fees if the online bank has no ATM network or is part of a small network. You can't deposit cash unless the bank is linked to ATMs that accept cash.
What are some advantages of online banking? ›
The 5 benefits of online banking
- Check balances on accounts and view records of your transactions.
- Pay bills automatically each month with easy-to-set-up auto payment.
- Transfer funds between accounts.
- Download or print statements for your tax or personal records.
- Access your account 24/7.
Due to the open nature of the Internet, all web-based services such as YAB's Online Banking are inherently subject to risks such as online theft of your User ID/UserName, Password, virus attacks, hacking, unauthorized access and fraudulent transactions.
What is the challenges disadvantages of online banking? ›
Disadvantages of Online Banking
- No Actual Branches. ...
- Tech-Related Service Disruptions. ...
- Concerns about Identity Theft and Security. ...
- Deposit Restrictions. ...
- Faster is Not Always More Convenient. ...
- No Relationship with a Personal Banker. ...
- Limited Services Scope. ...
- Possibility of Overspending.
It makes it easy and convenient to stay on top of your finances, since you can pay bills, send payments, or make deposits all from your mobile device. There are some downsides, however, as mobile banking apps may experience technical issues from time to time and they don't all feature the same functionality.
The top online banks offer higher rates than typical brick-and-mortar banks, often charge low or no fees and are insured by the Federal Deposit Insurance Corp. (FDIC).
What are the pros and cons of a savings account? ›
Advantages and Disadvantages of Savings Account
- Advantages.
- Earn Interest. A savings account helps you earn interest on the deposited amount. ...
- Safest Investment Option. ...
- Minimum Investment Amount. ...
- Disadvantages.
- Interest Rates Can Change. ...
- Easy Access. ...
- Minimum Balance Requirement.
Summary: Our Top Online Banks at a Glance
| Online Bank | Checking APY* | Savings APY* |
|---|
| Featured Provider SoFi Bank | 0.50% | 1.20% to 4.60% |
| Discover Bank | 0.00% | 4.25% |
| Ally Bank | 0.10% to 0.25% | 4.20% |
| Varo Bank | Not offered | 3.00% to 5.00% |
6 more rows5 days ago
Lower fees: Since online banks have lower overhead costs than traditional banks, they typically offer no or low fees for their bank accounts. Competitive product offerings: Online banks may offer more competitive interest rates for savings accounts or investment products, or better rewards for their credit cards.
Is online banking safer than traditional banking? ›
Services are similar to traditional banks, other than physical branches. Online banks take various precautions to keep your money safe, including FDIC insurance, data encryption, multi-factor authentication, and more. Determine whether a bank is legitimate using the FDIC's database.
What is the difference between a bank and an online bank? ›
The biggest difference between online banking and traditional banking is the ability to bank in person, and with it access to a wider variety of services and relationships. This means a bank branch a one-stop shop when it comes to money management.
What is one disadvantage of an online savings account? ›
Many online banks are not directly affiliated with ATM networks, which results in many ATM transactions being accompanied by large fees. Many online banking customers are required to pay a withdrawal fee to both their online bank and the physical institution whose ATM they are using.
What are the risks of online savings accounts? ›
The biggest risk of online banks is that someone will access your savings or checking account and steal your information and money. This typically happens when your account is hacked by cybercriminals who get your username and password.
What are the benefits of online savings account? ›
Online banks, credit unions and nonbank providers offer some of the best savings rates on the market while charging fewer fees than traditional banks. They also often offer good websites and mobile apps that typically let customers deposit checks and pay bills.
Is it a good idea to open an online savings account? ›
The bottom line on online banks: You'll likely get the most savings bang for your buck with an online bank, as they tend to offer higher interest rates than brick-and-mortar banks or credit unions.
