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Online Banking Advantages and Disadvantages

February 28th, 2009

Click here to view great bank rates at MoneyAisleWith the advent of a commercialized Internet and electronic payment systems, over the past few years we have seen a shift toward more financial institutions offering various services online. Most major banks are now offering some type of online portal where customers can check account activity and perform basic transactions. In this article, I will briefly summarize the advantages and disadvantages of online banking so that you can determine whether or not this might be feasible for your situation.

Here are the primary advantages of doing your banking online:

  1. You can access your account at any time of the day and are no longer confined to conventional business hours. Instead of having to adjust your personal schedule to conform to the restrictive hours of branch offices, you can check your balance and perform most transactions online from the comfort of your home. For cash withdrawals, you might need to walk a few blocks to find an ATM, but even this can be done at “odd” hours like 2 AM or 3 AM when the machine is most likely to be unoccupied.

  2. Online banking is generally faster and more convenient. Traditional banking can be a relatively slow process, especially if you encounter long lines at the teller windows or must delay transactions because the bank has already closed. Online access circumvents these kinds of hassles and allows you to do your transactions relatively quickly once you are comfortable with the required technology.
  3. As long as you have access to a computer and an Internet connection, physical location is not a problem. If you’re on vacation or traveling somewhere for business reasons, you can still keep an eye on your accounts and transfer money as needed.
  4. In some cases, you can get better rates for investment-related banking services such as savings accounts or certificates of deposit (CD). In recent years, “online only” banks such as ING Direct and Emigrant Direct are now offering high yield savings accounts with significantly more favorable rates than those found at other banks. This is possible because banks that operate strictly online can avoid paying most of the usual overhead expenses incurred by their brick-and-mortar counterparts, which leaves more money left over to pay depositors and still maintain a profit. Sites like MoneyAisle.com will even let you compare rates in a simulated “bank auction” to determine the most favorable deal among FDIC insured banks according to your place of residence and the amount that you have available to deposit.
  5. There are many useful features and services available online besides for the usual transactions. For example, you can apply for credit cards, manage investments, and pay bills through your online account portal. You can also perform more mundane tasks such as ordering new checks, requesting additional deposit slips, or reporting a lost or stolen debit card.

Of course, as with most services there are some potential drawbacks that you should consider before deciding on a long term banking solution. Here are some of the disadvantages of online banking:

  1. Although online banking is generally secure with modern encryption technology, it is still possible for identity theft or fraud to occur if you fall victim to a “phishing” site or otherwise have your sensitive account information compromised. For the most part, this can be prevented with common sense approaches like not clicking on suspicious links from spam emails and making sure that your account login page is actually from the correct domain of your banking site (slight misspellings and typos in the domain name is a common trick used in phishing attacks).
  2. If your bank operates only online or simply does not have a branch office in your local area, you will not be able to reach a representative in person for discussion of account issues. Normally this is not a problem, but sometimes customer service by telephone or email can be spotty and may prove to be more of a hassle if you have a serious issue that is not easily resolved. Some banks are better than others in this department, so you will need to do some research if this is an important consideration for you.
  3. Some types of services may not be available online or may be more difficult to do. For example, in my situation I have been having a very difficult time with trying to deposit rolled coins, especially pennies. Obviously I cannot do this directly online, but even using the indirect method of converting the coins into a money order and mailing this in as a deposit has been problematic because the money order vendors in my area will not accept rolled coins (presumably they will accept loose ones but when you have 1,000+ pennies, this gets rather messy). Of course, there is also the issue of having to send paper checks through “snail mail”, which delays deposits and incurs a small risk of this mail being lost before it reaches the bank and gets processed.
  4. Not all transactions are immediate. This is definitely the case with paper checks or money orders as mentioned above, but even ACH transfers (for instance, from a PayPal account) may take from one to five days before they are “settled” and the funds become available in your bank account. By contrast, with in-person banking, your deposits can be credited as soon as the teller keys them in.
  5. Using online banking effectively requires some basic computer literacy and familiarity with navigating the Internet. While this is not a problem for people like me, those who are afflicted with technophobia or are simply inexperienced with this particular genre may not be comfortable with this concept. There are also a significant number of people who are suspicious of anything having to do with the Internet because it is outside of their comfort zone. Others are simply too stubborn to acquire the relevant knowledge and skills.

While both online and offline banking have their pros and cons, you do not necessarily need to choose one over the other. It is possible to select a bank that has an online portal but also maintains a branch office in your area. Another option is to use an online bank to take advantage of higher yields on savings while maintaining an account with a local bank for handling in-person transactions such as depositing small checks or coins. Funds can be transferred between accounts as necessary to maximize overall returns. Either way, it is a good idea to become familiar with the concept of online banking so that you can benefit from its advantages and perhaps earn some extra money on your balance.

7 Responses to “Online Banking Advantages and Disadvantages”

  1. comment number 1 by: Ireland5

    Good article. Need to mention the online option provided by USAA online banking - called deposit@home. If you need to deposit checks or money orders, you can scan them through the USAA banking site and deposit the money into your account. It credits the deposit immediately. Unfortunately, this service currently is available only if you also have a credit card. Hopefully, it will be available to all USAA customers in the near future. This does not solve the ‘coin’ problem, but does eliminate the snail mail for deposits in most cases.

  2. comment number 2 by: Steve

    I personally prefer a hybrid approach. I use a local bank which also allows me to bank online. However, for savings, I love to use ING Direct, which requires 0 balance, and offers a very competitive interest rate, much higher than the measly .0124% or whatever the going interest rate is on your current checking account.

  3. comment number 3 by: ramakrishna

    online banking very use full now a day`s

  4. comment number 4 by: p.o

    Online banking is bolox

  5. comment number 5 by: Anonymous

    Thank you =)
    I just understood this .. it really helped me in my homework =)

  6. comment number 6 by: adimo carol

    thanks this was so dirrect and well versed for my coursework

  7. comment number 7 by: Asrar ahmed

    i suggest that online banking is time consuming

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