6 Advantages and 4 Disadvantages of Online Banking

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As the name suggests, an online bank exists entirely online. While there are no physical branches, online banks offer many of the same services as traditional brick-and-mortar banks. However, as the internet-only banking industry grows, it's clear that some shortcomings remain. Here, we'll outline both the advantages and disadvantages associated with online banking.


Online banks have the following great features.

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1. Available anywhere

If you're a digital nomad, a frequent vacationer, or simply a person who does not care to be tied down to one geographical location, online banking makes it easy to take care of business on the go.

2. Provides services you've become accustomed to

As long as you have internet access, you can pay bills, transfer money, open new accounts, check balances, download monthly statements, and more. The primary difference is that you don't have to go into a bank branch to accomplish these tasks.

3. Easy money transfers

Online banking makes it easy to transfer funds from one bank account to another. Let's say you're on vacation and realize that you should have moved more from savings to your checking account before leaving home. Within minutes, you can easily set up the transfer.

Or, imagine you have a child away from college who occasionally needs cash for meals or books. As long as you have their bank account linked with your online account, you can seamlessly move money from your bank to theirs.

4. Banking with low or no fees

Online banks don't have the overhead carried by traditional banks (for example, they don't have physical branches to maintain). They can pass those savings on to you through lower fees. Many online banks don't charge fees for everyday banking services.

5. Higher rates on accounts

Again, due to low overhead, online banks often offer the highest APY on things like certificates of deposit (CD) and high-interest savings accounts.

6. Easy access to customer service

Like traditional banks and credit unions, online banks offer access to customer service. If you have a problem, you simply give the bank's customer service department a call.


Here are some of the disadvantages associated with online banking.

1. Technology disruptions render banking unavailable

Let's say you're backpacking through Europe and hit a "dead zone," a spot where there is no access to internet service. You can only get to your online banking account once you have internet service again.

The same is true if there's a power outage and you lose internet service or the bank experiences server issues.

2. You won't know anyone

If you've done business with the same bank or credit union for years, it's nice to know you can walk into a branch, sit down with a bank officer you know, and receive help with banking issues.

Because there is no physical location, you'll never build a relationship with online bank employees. And for some people, it's nice to have a specific person you can call when you want to begin a new loan application or make a financial decision.

3. Don't help build your community

Credit unions and small local banks are known for being civic-minded, helping to build the communities they serve. If that's important to you, you will have a different experience with an online bank.

4. Cannot help with a "wet" signature

Banks do more than move money around. They're also places you can go to have a will, trust, adoption papers, or insurance benefits notarized. But first, the notary will need to watch you sign the document. This is called a "wet" signature. It's not a service an online bank can offer.

Whether or not an online bank is right for you boils down to what you need. If you only need basic banking services, opening an online bank account may be the right move. On the other hand, if you want a bank that can do it all, from witnessing a signature to providing a safe deposit box, sticking with a traditional bank is your best bet.

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We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Dana George has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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