Online Banking

Online banking gives you the ability to manage your bank account over the internet using a computer or mobile device. There’s no need to visit a bank branch, and you can do all of your banking tasks when it’s most convenient for you (even outside of normal banking hours). This makes it easier and often less expensive to use.

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You can bank online through an online-only bank or through the suite of online services that many brick-and-mortar banks and local credit unions now offer. Understand what is unique about the online banking experience to determine whether it's right for your needs and how to make it work in your favor.

How Online Banking Works

If you're a customer of a bank or credit union that offers online banking, you can open an account through that institution's website and manage your account after you register it for online access. At a minimum, you'll usually need the following items to register your account online:

• An internet connection

• A device with a web browser (a computer or smartphone, for example)

• Your bank account number

• Personal information to verify your identity (such as your Social Security number)1

Registration involves setting up a login and password. Once you complete registration, you can log in to your account and start banking online with only your internet-enabled device. Skipping a trip to the branch means you can conduct business anytime, from (almost) anywhere.

Banking Activities You Can Do Online

You can accomplish a surprising number of everyday transactions online.

Open Accounts

You can open checking, savings, and other accounts online, often without the hassle of printing or physically signing anything. In the past, you had to meet with a personal banker during business hours and fend off numerous sales pitches. With electronic signature capability, the entire process might now take less than 10 minutes.2

Pay Bills

Instead of writing checks to pay bills, your bank can print and mail a check for you month after month. But for greater convenience, it’s also possible to send money to a payee electronically, even if the amount you owe changes every month.

Transfer Funds

Need to move money from your checking account to your savings account? How about putting extra cash into a certificate of deposit (CD) or opening a new CD? You can carry out transfers online, so there's no need to visit a branch or wait on hold to accomplish these tasks. You can even link bank your accounts at different banks or send money to friends and family almost instantly through person-to-person services accessible through your bank.

Apply for Loans

Getting a loan is traditionally a paperwork-intensive process, but it doesn’t have to be. Filling in your application online speeds the process of checking your credit, allowing your bank to respond with an answer more quickly. Some banks with online loan applications make funds available the same day you get approved for a loan. Other lenders operate entirely online and can make near-instant lending decisions.

Deposit Checks

When someone pays you with a check, there are several ways to deposit it when banking online. The fastest and easiest option is with mobile check deposit: Snap a photo of the check through the mobile app of your bank and submit it for payment. There’s no need to mail the check.

View Current and Past Transactions

Need to see if that check cleared or how much your employer paid you? It's easy to view transactions online, download historical statements, and search for specific events.

Stay Informed

Sometimes, it may feel like too much work to log in to your bank's website just to find out the funds you have available. In addition to checking your account through these methods, your bank may let you use text messages or account alerts to manage your account, check balances, and more. Find out exactly what types of services are available and whether you would benefit from texting with your bank.

Pros of Online Banking

There are important benefits to working with a bank through which you primarily or exclusively manage your account online.

Better Interest Rates

Online-only banks tend to offer the highest annualized interest rates (measured in APY) on your deposits. This is because they don't have the overhead of brick-and-mortar banks and can pass some of the savings along to you. However, the online wing of some traditional banks may also offer competitive rates. Online banks also tend to offer lower interest rates on loans (measured in APR).

You generally want higher interest rates on savings accounts to make your money work harder for you. On the flip side, lower interest rates are desirable for loans because they reduce the total cost of the loan. It’s smart to shop around and compare online bank rates to traditional bank rates, but you’ll almost always do better online.

Lower Fees

Banks that let you manage your account mainly online typically cost less than traditional brick-and-mortar accounts for the same reasons they pay more in interest. You’ve got a good chance of landing a free checking account with an online bank and thereby avoiding monthly maintenance fees.

Online-only banks also provide a debit card that you can use to withdraw cash. Banks that belong to an ATM network may even offer free access to ATMs in that network or reimburse fees at unaffiliated ATMs.

Consider keeping accounts at an online-only bank and a traditional bank to capitalize on high interest rates and low fees at the former but retain the option to use in-person services at the latter.

Cons of Online Banking

Banks and credit unions with physical branches but limited online banking still have their place for a few reasons.

In-person Transactions

Despite the ability to deposit money via mobile deposit or withdraw it through affiliated ATMs at online banks, banking online may be impractical if you frequently make large deposits or withdrawals and need to do so through a bank teller. Some banks have a daily mobile deposit amount limit and ask you to visit an ATM or branch to make deposits exceeding that limit. This may prove difficult if your bank doesn't have a large network of free ATMs or a branch nearby. Most banks also place daily limits on the amount you can withdraw from ATMs. If you need more cash and can't convince your bank to increase the limit, you'll need to request a cash advance in person, which you can't do if you can't visit a branch.

Traditional banks can also provide notary services, safety deposit boxes, and official checks in an instant. You might not need those services often, but when you do, it’s typically during an important event when time is of the essence. Online-only banks lack physical branches so they don't offer these services typically. However, a traditional bank or credit union with robust online banking might.

Technology Issues

If you’re not comfortable with technology, banking online may come with a steep learning curve. Plus, glitches happen, and if your computer (or the bank’s) is down, you may have to put off a pressing transaction. For complex situations like pesky customer service issues or discussions about different types of loans, you might benefit from a face-to-face meeting at a traditional bank.

Online scams such as phishing schemes that use your email or text to extract information or money from you are a reality.3 But as long as you only send information to people you trust, and through authentic websites, you can avoid many of them. Be careful about what you click on, and contact your bank if you have any concerns.

Safety of Online Banking

Banking over the internet is generally safe as long as your deposits are federally insured (through the Federal Deposit Insurance Corporation or the National Credit Union Administration).

In many respects, online banking is more secure than traditional banking. Having your pay directly deposited into your bank account eliminates the risk of someone stealing your check from the mail. Plus, no one can copy your account information from checks that you send to billers because bank computers send that information back and forth securely, and without storing it. If fraud or errors occur during an electronic funds transfer, federal law often protects you, as long as you act quickly.4

Staying safe while banking online is relatively easy. Keep your computer and other devices up-to-date. In particular, ensure that the operating system, antivirus software, and firewall are current. Use complex passwords, and never write them down. Finally, never respond to emails, phone calls, or text messages that ask you to provide sensitive account (or personal) information.

Key Takeaways

• Online banking allows you to skip trips to a branch and carry out a host of banking activities over the internet.

• You will need to register your bank account for online access before you can access online services.

• Online banks offers high interest rates on deposits but can complicate transactions that call for increased interaction with bank staff.