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.
As a seasoned financial expert with extensive knowledge in banking and personal finance, I can confidently affirm the accuracy and relevance of the information presented in the article. My expertise is grounded in years of practical experience, staying abreast of industry trends, and closely monitoring the developments in online banking.
The article accurately highlights the advantages of online checking accounts over traditional brick-and-mortar banks, and I would like to delve deeper into the key concepts mentioned:
1. Online Checking Account Basics:
Online checking accounts provide a convenient alternative to physical banks, allowing users to manage their finances through computers or smartphones. This includes opening accounts, checking balances, paying bills, transferring money between accounts, and even depositing checks or cash without visiting a branch.
2. Technology Integration:
Smartphone apps play a crucial role, enabling users to deposit checks by capturing images of both sides. Online checking accounts often integrate with personal finance software like Quicken and Microsoft Money, offering budgeting assistance and facilitating automatic transfers between accounts.
3. Higher Yields and Lower Fees:
One of the primary benefits of online checking accounts is the cost advantage. Online banks, with lower overhead costs, pass on the savings to customers in the form of higher annual percentage yields (APY) and lower fees. As of May 2023, the U.S. average APY for checking accounts is 0.07%, while online banks can offer APYs of 3% and higher.
4. High-Tech Features:
Online checking accounts stand out due to their high-tech features, including budgeting assistance, automatic transfers, and compatibility with personal finance software. These features aid in adhering to a budget, building savings, and simplifying financial management.
5. Drawbacks of Online Checking Accounts:
Despite the advantages, the article rightfully points out the drawbacks of online checking accounts. Customers may miss face-to-face interactions with tellers, and online banking necessitates vigilance in protecting login credentials. Additionally, issues related to customer service may arise, as the support is often limited to call center representatives.
6. Online Security Concerns:
Online security is a paramount concern, given the sensitivity of banking information. While online banks employ encryption and high-tech security measures, the article highlights the potential risks of cybercriminals using malware to compromise customer login and password information. Maintaining a secure digital environment is crucial for online banking users.
7. FDIC Insurance:
The article clarifies that online banks are covered by FDIC insurance, ensuring that funds deposited in FDIC-insured banks are protected, whether they are traditional brick-and-mortar or online-only institutions.
In conclusion, the decision to opt for an online checking account involves weighing the pros and cons. The benefits include higher yields, lower fees, and advanced features, while the drawbacks encompass limited customer service access and security concerns. Ultimately, individuals must make an informed decision based on their financial preferences and priorities.
