Online Banking: Pros and Cons (2024)

Online banking allows you to save time by managing accounts, paying bills, and doing other things from your computer or cell phone. The range of tasks you can complete online is so extensive that it's possible to ditch traditional banks altogether and move to online-only banks. These institutions have no physical branches to visit and often charge lower fees and offer better interest rates because they don't have the added expenses associated with brick and mortar structures across multiple locations. This kind of banking offers many conveniences, but there still may be hiccups as you manage your money.

Nearly everything you can do with an account at a traditional bank is possible through online banking. Online banking is also available from brick-and-mortar banks, which provide access to your accounts in person or online. Typical functions include online bill paying, mobile check deposits, checking bank balances, transferring money between accounts, setting up automatic payments, and sending money to another person.

Pros

  • General convenience of online banking

  • Easy to open new accounts

  • Potential for lower fees and better interest rates

Cons

  • Customer service lacks personal touch

  • Not an option for those lacking access to the internet

  • ATM options may be limited

  • Greater due diligence required to vet the bank

What Is Online-Only Banking?

While traditional brick-and-mortar banks allow you to complete some banking transactions online, some banks offer an exclusively online experience, with no physical branches to visit.

While you might have concerns about customer service or security, most consumers are quite satisfied with their online banking experience. Many online-only banks pay higher interest rates on savings. According to an October 2021 American Bankers Association survey, 72% of Americans prefer to bank online, with 44% of those reaching for their mobile phones (instead of a computer). ATM transactions now make up only 8% of overall bank transactions.

Some issues still exist with banks that operate exclusively online, however, and the following can help you weigh the pros and cons of online banking.

Benefits of Online-Only Banking

There are several reasons why online banking is so popular.

Easy Account Opening

Opening an online bank account typically takes just a few minutes. You can complete most or all of the steps online or with a short phone call.

Get Your Pay Easily

Some online banks allow you to get your earnings or other direct-deposited funds a few days early. Those banks essentially let you spend that money before it even arrives in your account.

Easy Spending From Your Online Account

While you might be concerned about access to funds with an online account, you still have easy access as long as you use accounts that offer online bill pay or debit cards. You can use your card at an ATM, online merchant, or in-person retailer. If you get cash frequently, it’s also helpful to choose an online bank that has an extensive ATM network or reimburses you for any ATM fees you pay.

Drawbacks of Online-Only Banking

Online banks have their disadvantages as well.

Customer Service at Online Banks

With a brick-and-mortar bank, you may have some familiarity with the staff, and at a small credit union, the staff might even know you well.

Note

If you’re the type of person who enjoys personal interactions, it’s easier to find that at a brick-and-mortar institution.

Problems are sometimes easier to solve in person. If an error occurs with your account, a face-to-face discussion may be the most effective way to make progress when things are confusing. You won’t have to wait on hold and deal with an “escalation” process when everybody can sit down together and figure things out.

The staff at a brick-and-mortar bank branch matters because it’s easier to get quality service if you know them, they know you, and they know what you typically do with your accounts. You can choose who you deal with if you’re familiar with the employees (ideally, there’s somebody you like working with).

However, online banks often require that you call in. You might get somebody on the line who’s helpful and knowledgeable, but you might not. You can always hang up and try again later, hoping to reach a better-qualified (or more service-oriented) representative, but that’s frustrating and time-consuming. Fortunately, customer service is often good at online banks.

Technical Glitches

Online banking websites sometimes go down. When that happens, there's no backup branch that you can go to, and the customer service phone lines will likely be clogged. To protect yourself, always keep a backup account open with some emergency cash so you won't be penniless while they fix the problem.

Paying Others

You can pay bills through online bill pay, but sometimes you need other forms of payment. In terms of cleared funds, if you need to pay somebody with a cashier’s check, an online bank account may slow you down, requiring you to order a check and wait for it to arrive by mail.

Note

You can generally do a wire transfer out of an online bank account if your payee will accept it.

Depositing Cash

When there are no brick-and-mortar locations, handling cash can be problematic. Some banks allow you to deposit funds at an ATM or retail outlet, so research those options if you frequently get paid in cash.

Greater Need for Due Diligence

With brick-and-mortar banks, you know that the bank actually exists, has branches and employees, and is authorized to operate. With online-only banks, you may have to do your own research to ensure that they are authorized and registered with the proper regulators, have sufficient capital, and have satisfied clients.

The Bottom Line

Unless you simply cannot tolerate any of the situations above, you'd probably benefit from opening an online account. There are several reasons to consider online banks:

  • They offer an easy way to bank for free.
  • They're your best bet for securing high-interest rates.
  • They offer convenience in a variety of ways.

You may never run into any of the problems mentioned above, and your overall experience will probably be satisfying, but you should always be prepared for occasional glitches.

Online Banking: Pros and Cons (2024)

FAQs

What is the downside of online banking? ›

Cons of online banks

Customer service can be virtual and impersonal. You are more likely to incur ATM fees if the online bank has no ATM network or is part of a small network. You can't deposit cash unless the bank is linked to ATMs that accept cash. The number of products tends to be more limited at online banks.

What are the pros and cons of digital banking? ›

9 Advantages and Disadvantages of Digital Banking
  • #1: Access to Money and Account Information. ...
  • #2: Equity. ...
  • #3: Paperless Banking. ...
  • #4: 24/7 Customer Assistance. ...
  • #5: Speedy Transactions. ...
  • #1: Security. ...
  • #2: Downtime. ...
  • #3: Learning Curve.
Jun 28, 2023

What are the pros and cons of online accounts? ›

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.

What are the pros and cons of e-banking? ›

Here are just a few of the main benefits:
  • 1: Your money is available anywhere. ...
  • 2: Money transfers are easy. ...
  • 3: Opening a new account is a breeze. ...
  • 4: Other banking services are so much quicker. ...
  • 1: Tech sometimes may fail. ...
  • 2: Getting in-person customer support can be difficult. ...
  • 3: Security may be a concern.
Jun 21, 2023

What is the biggest danger when online banking? ›

The biggest risk of online banks is that someone will access your savings or checking account and steal your information and money. This typically happens when your account is hacked by cybercriminals who get your username and password. However, these risks are not limited to banks that operate exclusively online.

What is the main problem in online banking? ›

Online banking is at risk of cybersecurity threats that could expose confidential and sensitive financial information of the customer. Hackers use various tactics like phishing attacks, malware, and ransomware to gain unauthorized access to accounts.

What are two good reasons to not use online banking? ›

Limited deposit and withdrawal options

Many online banks offer a limited number of deposit-taking ATMs, but if you don't have one of these nearby, you might be out of luck. That's why some people choose to maintain checking accounts at brick-and-mortar banks -- they can transfer cash to these easily.

What are 3 advantages of online banking? ›

Online banking customers enjoy instant access from their computer or mobile device to a full range of services, allowing you to:
  • Check balances on accounts and view records of your transactions.
  • Pay bills automatically each month with easy-to-set-up auto payment.
  • Transfer funds between accounts.
Feb 14, 2024

Should I use an online bank? ›

The lack of overhead gives internet banks advantages over traditional banks, including fewer or lower fees and accounts with higher APYs. Internet banks lack personal relationships, no proprietary ATMs, and more limited services.

Can you deposit cash with an online bank? ›

If your online bank is part of an ATM network, you can deposit cash into your online account via a linked cash machine. You can also consider getting a reloadable prepaid debit card that you can deposit cash onto and link it to your online bank account.

What is the best online banking? ›

The 10 best online banks for 2024: APYs up to 5.25%
  • Bank5 Connect.
  • Zynlo.
  • Quontic.
  • SoFi.
  • American Express.
  • Ally.
  • Laurel Road.
  • Everbank.

What are the pros and cons of banking? ›

In conclusion, traditional banking offers a range of advantages such as personalized customer service, physical branches, and a sense of security and trust. However, it also has its drawbacks, including potential fees, limited accessibility, and lengthy processes.

What is the major disadvantage of online banking? ›

The biggest disadvantages of online banking
  • It can be difficult to deposit cash: Depositing cash can be almost impossible with some online banks, since there's no physical location to take the money to.
  • You won't have a physical branch to visit:
  • Many online banks offer more limited account options:

What are the cons of digital banking? ›

Con: No Personal Relationships

Additionally, if you need to make changes to the terms of your account, a bank manager usually has some discretion if your personal circ*mstances do change. Additionally, digital banking platforms may not be as accessible for some people and can be difficult to navigate and understand.

Is online banking a good idea? ›

If you want higher rates and lower fees and don't need frequent branch banking services, an online bank may be worth considering. Keep in mind, you can choose to open an online account without giving up an existing account at your local institution.

Why do people not like online banking? ›

For many, online banking has made a trip to the local bank a thing of the past. However, online banking has some disadvantages such as security concerns, system interruptions, inability to access a breadth of bank services and lack of personal care, leaving others to stick with on-site bank visits.

Is online banking safer with an app or browser? ›

Are banking apps safer than Internet banking? Banking apps can be safer than using an online banking portal due to biometric-enabled login options for your phone and the app itself. Your face, your fingerprint and your phone are a lot harder to hack than your username and password.

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