The Pros and Cons of Online Banks

Online-Banking-Digital-Wallet-IconThe Internet has given bankers the opportunity to set up their websites and begin providing services through online banks. These banks are very different from the traditional banks but they offer advantages that traditional banks cannot give to clients.

1. Higher Interest Rates on Accounts

Being able to earn a higher interest rate from an online bank is definitely one of the pros of the website-only bank. These banks do not have to purchase or lease a building or an office and do not have all the expenses that traditional banks do. This saves these online banks a significant amount of money and makes it so that they have the means to entice new customers with higher interest rates on their accounts. At a time when banks are offering savings accounts with .01 percent interest rates, the online bank has an advantage in this area.

2. Lower Interest Rates for Loans

The fact that online banks save money from not maintaining an office also means that clients can receive a more advantageous rate on a loan than at a traditional bank. The interest rates that people receive for loans is typically lower, and this will mean that people will pay much less for their loans over the years than if they obtained a higher rate from another bank.

3. Lower Balances Required to Avoid Fees

With a traditional bank, people can avoid fees if they maintain a balance over a certain amount. Here again online banks are at an advantage. These online banks can require a lower deposit than traditional banks to avoid these fees.

The Cons

The online banks also have some negatives that are specific to them and deserve discussion as well.

1. The Problems with Withdrawals

After depositing their money into an online bank, the access to these funds will be limited. An online bank that only operates over the Internet does not give people the option of going to the ATM at any time to withdraw their money. If they would like to do this, they will have to wait for it to be transferred to their traditional banks. This can be highly inconvenient for those who need their money on an emergent basis.

2. The Problems with Deposits

Sometimes, making deposits can be just as problematic as withdrawing funds from an online bank. Because online banks do not have local branches for deposits, clients will need to mail them or they need to make electronic transfers that may not be completed in one day.

3. Using Other Banks’ ATMs

It’s not impossible for clients of online banks to use ATMs but it can require that they pay fees for the privilege. Customers of traditional banks can avoid the fees other banks charge by only visiting their own banks ATMs. This option is not available with online banking because online banks do not have their own ATMs. Furthermore, online banking clients are using other banks’ ATMs that may malfunction. Since they are not customers of these banks, they will not have the option of going inside the bank to complete their transactions.

The Most Popular Online Branches

After considering the pros and the cons, people may decide that the advantages outweigh the negatives and they would like to open an account with an online bank. A few of the best options are ING Direct, Ally, CITBank, EverBank, Barclay’s and DiscoverBank. These online banks have much higher interest rates on their savings accounts than the .01 percent that traditional banks can offer and several of them do not require a minimum balance to maintain the account without fees.