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 are the pros and cons of online banking? ›

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 advantages and disadvantages of internet banking? ›

Features include checking account statements, transferring funds, and paying bills. Advantages include availability, convenience, and time efficiency, while disadvantages include the need for internet connection, transaction security issues, and complexity for beginners.

What are 5 risks of online banking? ›

Due to the open nature of the Internet, all web-based services such as YAB's Online Banking are inherently subject to risks such as online theft of your User ID/UserName, Password, virus attacks, hacking, unauthorized access and fraudulent transactions.

What are two reasons to not use online banking? ›

  • 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.
Dec 31, 2021

What are three advantages to online banking three disadvantages? ›

What are the advantages of online banking?
  • 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 are the disadvantages of online bank accounts? ›

Cons of online banks

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. Some only offer a few types of accounts.

Can you identify any disadvantages of online banking? ›

Some disadvantages of online banking include: No physical branches when you need help. Challenging cash deposits. No access to foreign currency.

What is one of the benefits of an internet bank? ›

Online and mobile banking provides many useful features that all can be taken care of with a few clicks or taps. For example, locating nearby ATMs, enabling automated savings tools, push notifications regarding low balances or overdrafts, and much more.

What is the biggest issue with 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 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.

Why is online banking risky? ›

The biggest risk of online banking is that someone could access your account by getting their hands on your username and password, hacking your account, exposing you to a virus, or using your debit or credit card to make a purchase. These risks exist for online and traditional banks offering online banking services.

What are 3 advantages of online banking? ›

Online banking means you'll be able to keep on top of your finances far more easily. You'll be able to check your balance quickly, view your transactions and know exactly what's going out and when, as well as look at historical payments to make sure they're cleared.

Can you deposit cash if you have an online bank? ›

Some online banks participate in ATM networks. If your online bank is one of them, you can deposit cash at the closest ATM. Once you've found an ATM, take your cash to the ATM, fill out a deposit slip with your account information, and put the money into the deposit envelope.

What is the biggest drawback to online banking? ›

Disadvantages of Online Banking
  1. No Actual Branches. ...
  2. Tech-Related Service Disruptions. ...
  3. Concerns about Identity Theft and Security. ...
  4. Deposit Restrictions. ...
  5. Faster is Not Always More Convenient. ...
  6. No Relationship with a Personal Banker. ...
  7. Limited Services Scope. ...
  8. Possibility of Overspending.

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.

What are the pros and cons of mobile banking? ›

It makes it easy and convenient to stay on top of your finances, since you can pay bills, send payments, or make deposits all from your mobile device. There are some downsides, however, as mobile banking apps may experience technical issues from time to time and they don't all feature the same functionality.

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