Banking » Guides » Pros and Cons of Online Banking: What You Should Know
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Pros and Cons of Online Banking: What You Should Know

Online banking is becoming more popular among consumers - but with all of the great benefits it offers, there are some drawbacks to consider
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor

Experience

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
Interest Rates Last Update: April 15, 2024
The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor

Experience

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
Interest Rates Last Update: April 15, 2024

The banking product interest rates, including savings, CDs, and money market, are accurate as of this date.

We earn a commission from our partner links on this page. It doesn't affect the integrity of our unbiased, independent editorial staff. Transparency is a core value for us, read our advertiser disclosure and how we make money.

Table Of Content

What is Online Banking?

Online banking is a new type of banking that allows users to contact their bank through the internet. In this system, the user can access their bank account online and perform transactions. Online banking is also considered internet banking because it uses the internet as its main channel of communication.

Online banking is becoming more and more popular among consumers because of its suitability. With the meteoric rise in international trading and e-commerce adoption, providing online banking facilities has become the most important priority for every major banking organization. Customers can access online banking wherever they have internet access over their mobile phones or personal computers. Some of the financial services that can be completed by customers using online banking include:

  • Money transfers to other bank accounts
  • Paying utility bills
  • 24/7 Access to account information like (Balance, transactions, account numbers, etc)
  • Access to bank statements
  • Easy management of multiple bank accounts through online banking

Online Banking Features

Online Banking offers a lot of flexibility to the users and the bank administration. But here, we are focused on the features from the consumer’s perspective. Here are some of the important features of online banking:

1. Updated Account Activity

One of the most important features of online banking is having access to updated account activity every time.

With 24/7 access to your account activity, you can more easily plan your finances and keep track of your transactions which helps to reduce errors. You can even filter down your transactions to find the specific ones made during a specific period.

2. Easy Management of Expenses

With online banking, you can have more control and visibility over your expenditures. Some banks also provide features like capping the expenditure amount, so you never get out of the budget while shopping.

This can help make the user in financial planning and sticking to the budget.

3. Managing Card Services

With online banking, it is much easier to manage all your credit and debit cards issued by the bank.

With this feature, you can control the spending limits on your cards, pay the bills for credit cards, and block the card in case it is stolen or misplaced. 

4. Mobile Check Deposits

Some of the banks also offer the feature of mobile check deposits. With this feature, you don’t have to visit your bank anymore to deposit a check.

All you have to do is simply login to your Online banking a follow the instructions of your bank to deposit the check.

5. Enhanced Security Features

With the advanced in cyber security, online banking is becoming more and more secure.

The best online banks offer a secure way of using online banking by using fingerprint and facial recognition technology to authenticate the login process.

online banking activities through bank mobile app
(Photo by NicoElNino/Shutterstock)

Advantages Of Online Banking

Apart from being able to bank anytime, from anywhere, there are other advantages of online banking. You can also:

Most online banks offers much higher interest rate on sacingd deposit compared to traditional banks. Since online banks can save on facilities, employees and real estate, they can offer higher rates on savings accounts, CDs and other savings products.

Banking online is among the cheapest alternatives to getting banking services.

Most online banks don't charge monthly maintenance fees on their checking and savings accounts, unlike traditional banks. Also, some of them offer no overdraft fee, no closing cost fee on loans, and many other benefits.

Online banking is saving a lot of resources for both consumers and banking organizations. For a customer, it is providing the convenience of getting all the banking services without visiting the bank.

For Banks, it is saving a lot of resources and helping the banks to cater to a larger consumer base than the brick-and-mortar-based branches.

The ability to pay online to multiple accounts without having to visit your branch or hire others’ services is one of the best advantages of online banking.

If you have a business account, you can choose your bank’s account management services to pay your suppliers and employees securely and efficiently.

Online banking is a convenient way for customers to manage their finances. It comes with the advantage of being accessible anytime, unlike physical 9-5 physical branches working on weekdays only.

Customers can do all their banking activities from the comfort of their homes, offices, or wherever they have the access to the internet. They can check their balance, transfer money, pay bills, and much more without having to take time off from work or travel anywhere.

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Disadvantages Of Online Banking

Although online banking continues to improve, there are some drawbacks that can turn you away from online banking.

Online banking depends on a strong internet connection on both sides – consumer and baking server. If either of the sides experiences an internet outage or any technical glitch, the banking services may get affected.

Apart from internet issues, online channels are subject to regular maintenance activities and remain unavailable till the completion of the activity.

A relationship with your local bank can offer many benefits over online banking. Whether you need a business loan, a new line of credit, a cashouts, or a change in your banking needs, having a one-to-one relationship with a bank officer can help.

A direct bank relationship can also help you create a business account that suits your needs.

While online banking is becoming more and more secure, there are always loopholes that cybercriminals can use to get your personal and financial information.

However, adhering to the general security guidelines can minimize the risk. Some of them are:

  • Using only trusted app and website addresses for online banking provided by the bank
  • Bookmarking the website and saving the browser window.
  • Using a two-step verification method, like login credentials with SMS confirmation or others.

When It Might Make Sense to Use Online Banking

Banking online makes a lot of sense to do routine transactions and get services that do not require any special considerations.

It not only saves a lot of time but is also more efficient than the traditional method of going to the physical bank branch. Some of them are:

  • Paying bills for utility services like electricity, telephone, and other municipal services. Many entertainment service providers are also accepting online payments. Other than that, credit card bills can also be paid online.
  • High deposit: if you need a savings account or CDs and want to get the best rates, you'll probably get it from an online bank.
  • Doing multiple transactions with the suppliers or employees that would otherwise require hiring the services of a teller. Now online banking also offers the services of account management which can be used for processing bulk transactions.
  • Depositing checks that do not require any special consideration before processing can also be done through online banking. You can also deposit cash into your online bank account.
  • Making e-commerce payments through online banking is not only secure but also contributes to increasing the trust level between buyers and sellers.
Financial Institution
Savings APY
CD APY
American Express
4.30%
Up to 4.75%
Marcus
4.40%
4.00% – 5.05%
Capital One
4.35%
4.00% – 5.10%
Discover Bank
4.25%
2.00% – 4.70%
Quontic
4.50%
4.30% – 5.30%
UFB Direct
Up to 5.25%
/
Ally Bank
4.25%
3.00% – 4.50%
TIAA Bank
5.15%
3.95% – 5.15%

When It Might Not Make Sense to Use Online Banking

Here are some reasons why online banking might not be suitable:

  • For complex banking needs, online banking would be of no avail. Doing business transactions that would require special considerations cannot be done via online banking.

Sometimes having a good relationship with a banking officer can help face corporate issues like taxation, facilitation in Letter of Credit (LC), getting loans, and other banking needs.

  • Small business owners would need more than online banking services to sail over the high tides of the challenging environment. In this case, making a good personal relationship with the baking officer would be beneficial for them.

With a good relationship, small business owners can get better services for insurance coverage, corporate account management, and other banking services that online banking cannot provide.

FAQs

Yes, usually all the banks offer this option. Opening an online bank account can be quick and easy. It only takes a few minutes and saves you a trip to the bank branch. But if you are opening an account with an online bank, it may be your only option

Here's the general flow to opening an online bank account:

  1. Select the type of account you want.
  2. Fill out the application form available online.
  3. Provide scanned copies of identity and other documents to verify personal information.
  4. Wait for the bank authorities to confirm your account.

Like opening an account online, closing the account can be done too. Although it depends on the particular bank you are using.

Some banks require you to make a phone call to customer support to authenticate the action while others require you to visit the branch in person.

Online banks lack their own ATM network and rely on third-party service providers to offer this service. It sometimes involves more fees than the traditional banks having their own network of ATMs.

Online banking is very much on the safer side. Banks usually invest heavily in cyberinfrastructure to make them secure. Security also depends on the user’s practice of online banking such as using a strong password, accessing services through a trusted network, etc.

However, there always remain security risks and cyber security teams are always on the alert to detect any malicious activity.

Adding a co-signer or a beneficiary can be done at the time of filling out the account information. If there is the need to assign a co-signer after opening the account, that is also possible.

Every bank has its process to deal with such changes. It is also possible to name more than one beneficiary on your account.

Picture of Baruch Mann (Silvermann)

Baruch Mann (Silvermann)

Baruch Silvermann is a financial expert, experienced analyst, and founder of The Smart Investor.  Silvermann has contributed to Yahoo Finance and cited as an authoritative source in financial outlets like Forbes, Business Insider, CNBC Select, CNET, Bankrate, Fox Business, The Street, and more.
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