Category: Banking Online

Jan 31 2012

The Pros and Cons of Internet Banking

Online banking has become very popular in the past couple of years  for simple banking transactions. Online banking can make actively managing your financial life much more simple and less time-consuming. With an internet bank, you’ll be able to monitor your accounts, pay bills, and transfer money, all with the click of a button.

But if you are considering online banking, and in particular, Internet only banking, remember that internet (or “direct”) banks are not always a viable substitute for brick-and-mortar banks in all cases. To help you decide whether to switch to online, stay with traditional banking, or do a combination of both, let’s examine the advantages and disadvantages of Internet banks.

The Advantages of Internet Banks

1. Banking convenience.

Direct banking institutions are open for business anywhere and any time you have a web connection. They will sometimes perform maintenance on their site, but otherwise, they will be open 24/7 to help you manage your finances.  Your account balance and information are can be accessed with a just few keystrokes and you can also send yourself alerts to help you manage your money better.

2. Better interest rates, lower fees.

Infrastructure and overhead costs are minimal and allow Internet banks to pay higher interest rates on savings accounts while charging lower loan and mortgage rates. There are even accounts with no minimum balance or service fees that can be opened without a minimum initial deposit. Just put in your personal details, and get started.

3. Extensive financial information.

Internet banks normally have better-quality websites than traditional banks, with more comprehensive content. Such features can include functional budgeting and forecasting tools, online financial planners, investment analysis tools, loan calculators, retirement calculators, and more. They can help you with budgeting and financial planning long before you have to speak to a specialist.

4. Banking wherever you are.

Internet banking now almost always includes mobile capabilities that will send you text messages, email messages, let you bank through an app, and more. New applications are continuously being created to further expand and improve this capability on smart phones and other mobile devices, so if you love to keep up to date on the latest technology and stay on top of your money, you will enjoy all the features an Internet bank has to offer.

5. Easy electronic transfers.

While traditional banks do allow funds to be moved via electronic transfer, often there is a fee. Most internet banks offer unlimited transfers at zero cost. This even includes transfers to outside financial institutions. They also accept authorized direct deposits and withdrawals, such as payroll deposits and automatic bill payment.

6. Simple to get started, simple to use.

Online accounts are quite easy to set up, and don’t require any more information than a traditional bank account. If you don’t want to complete the application online, the forms can be downloaded and mailed. Online checks are actually easier to use, since the payee information is automatically saved for future use. You can also often connect with your top financial software, such as Excel and Quicken.

The Disadvantages of Internet Banking

1. Lacks the personal touch.

A regular bank does offer a better opportunity to develop a personal relationship. These connections can help when you need a loan or other special service. Your local bank manager also has some discretion when you’d like an overdraft fee removed. You can talk to a human being more easily if they are just down the block than online miles away.

2. Transaction fees.

Complicated transactions and large cash transactions can be challenging with an online bank. Most Internet banks don’t have their own ATMs, though some have begun to form network alliances with traditional banks. But in most cases, ATM use will cost you unless you can find a nearby machine.

3. Available services.

Some Internet banks may not have the full range of financial services that a traditional bank has, such as insurance offerings and notarization. They might not have physical branches at all. It might also be hard to find an ATM linked to their system without having to pay high fees. (See above.)

4. Security concerns/online identity theft.

Internet banks are required to obey the same laws and regulations as a traditional bank, and the FDIC insures the bank accounts. However, having electronic access to your accounts always carries some additional risk to your data, regardless of whether you’re using a traditional bank or an Internet bank. With many people worried about identity theft, you might want to consider the decision to bank online or via your phone carefully before proceeding.

There are advantages and disadvantages to both online and traditional banking. Your ultimate solution might be to utilize both types of banks. Use the pros and cons highlighted above in relation to your own decision, and see if online banking is right for you.


Eternal Spiral Books: Money Matters Series