What Are Online Banks? The Pros and Cons

Online Banks offer higher interest rates on deposit accounts. They are able to pay you more because they don’t have to maintain branches and pay branch employees.

Credit Union’s for example are not-for-profit and pass all their earnings on to their members. However, more often than not you won’t be eligible to join a Credit Union due to their membership requirements.

An Online Bank is able to offer the same selflessness to provide higher interest rates while also being available nationwide.

Some banks specialize in investment accounts like Brokerages and CD’s. While searching for the best savings rates, I uncovered that banks often incentivize you by offering interest rates for certain bank products. However, these rates fall around 0.01% APY and is virtually nonimpactful to your bottom line.

Furthermore, these accounts from traditional banks also come with larger service fees.

Online Banks can afford to offer lower or fewer fees. The lack of overhead saves you and financial institutions money. Additionally, sometimes there are outrageous requirements to waive maintenance fees at traditional banks.

In addition, you can also receive fee reimbursements when you use a non-affiliated ATM.

Fees reduce the value of your account by taking away your hard earned money.

Since the majority of your interactions with an Online Bank will be through their website, online banks typically offer more sophisticated websites. Similarly, they have mobile apps that offer convenient account management on the go.

While you may not feel your money is safe when managing your account online, it is incredibly safe. They provide encryption to hide your information and fraud monitoring to protect your money.

Financial Institutions are also insured by the FDIC or NCUA as you have seen on our site. This protects your money further in event of a loss and the institution will reimburse you up to their coverage limits.

When you run into problems such as needing to link credit cards to your accounts you will prefer to work with a service representative.

You can always contact a customer service representative with your account, but there is not guarantees that you can get it done as quickly without visiting a branch. It is also frustrating having to articulate your issue and being transferred between “specialist” and departments that can’t solve your issues.

Fraud monitoring, while helpful, can be frustrating when you have to verify your identity every time you need help.

Online Banks simply can’t provide that intimate relationship you can have with a local credit union or bank.

Some people operate with cash as compared to checks and money transfers. Online Banks and mobile banking apps have integrated mobile check deposit to eliminate the need to visit branches. ACH transactions, wire transfers, and third-party companies may be your only alternative to send money. However, how do you go about depositing cash?

Some Online Banks are part of a network of ATM’s where you can always withdrawal money, but there isn’t any true solution on how to deposit cash at the moment.

Traditional Banks also offer the opportunity exchange your U.S. dollars for foreign currencies. Without this, you will have to pay operating fees to convert your cash.

If you have a lot of a cash on hand, consider a business account at a traditional bank.

While internet and data are readily available for you to have access to your account, sometimes it isn’t. Online Bank’s sites and apps are subject to maintenance and downtime as well. Meaning there can be times where you don’t have access to your money.

However, this is one of the risks that Online Bank’s has identified as a problem that can be eliminated with improved infrastructure in the future.