03 Jun What Is Online Banking, and Is It Right for Veterans?
Online banking allows you to manage your bank account from a computer or mobile device over the internet. You won’t need to go to a bank branch, and you’ll be able to complete all of your banking duties whenever it’s most convenient for you, including outside of typical banking hours.
Learn why online banking is often more straightforward, less expensive, and safer than traditional banking.
What Is Online Banking?
The ability to make financial transactions through the Internet is known as online banking (sometimes referred to as web banking or Internet banking).
The services offered by online banking are virtually identical to those of local branches, including deposits, transfers, and bill payments online. Almost every bank has internet banking accessible via desktop and mobile banking app. With online banking, customers can access their accounts from anywhere with an internet connection. Among the services offered by online banking are:
- Checking the balance of your account.
- Keeping an eye on account transactions.
- Payment of bills.
- Transferring money from one account to another.
- Retrieving old bank statements.
- Updating basic account information.
Online Banking vs. Traditional Banking
Traditional and online banks both look after your money, but they have different features and capacities. Below are a few key differences at a glance:
|Online Banks||Traditional Banks|
|Fees||Reduced or even free fees||There are more fees, and the amount is higher|
|Interest||Savings account with a higher APY; some offer interest on checking accounts, too||Low or even zero APY|
|Service||Customer support is available online and by phone||Support available in person, online, and over the phone.|
|Online access||Access to online and mobile apps automatically||Mobile apps and online access are usually available if needed|
Also Read: Best Military Banks and Credit Unions for Veterans
What Kinds of Accounts Can You Open at an Online Bank
If you deposit funds in a checking account, you can access them immediately. The only requirement is to have enough money in your account to fund your transactions. There is usually no minimum balance requirement.
When you overdraw your account, your bank pays the entire purchase cost because you spent more than you have in your account. Almost often, you will be charged fees if you overdraw your account.
Interest can be earned on money deposited in a savings account. These accounts, however, are for saving money, as the name suggests. As a result, there usually is a monthly limit on the number of specific withdrawals or transfers you can make, as well as a daily minimum balance requirement. Who wouldn’t want to make money just for the sake of having money? Keep in mind that any interest you earn on your account is considered income and therefore taxable.
For some people, car loans from online bank lenders can be a viable financing choice, especially if they are short on cash or seeking lenders ready to work with clients with bad credit. Certain online auto loan providers may have lower interest rates.
An online vehicle loan may be a viable alternative for you, depending on your financial circumstances. However, there is no one-size-fits-all option for online vehicle loans. Spend some time researching. You can quickly and swiftly research lenders even if you have limited time.
The mortgage lender typically creates an account for insurance and taxes and pays the insurance and taxes on behalf of the borrower.
Moreover, the borrower can put these expenses towards their regular monthly payment rather than being hit with steep fees now and then.
The amount of a borrower’s monthly mortgage payment that pays homeowners insurance premiums and property taxes is held in an auto loans account. It also saves the earnest money deposited by the buyer between the time their offer is approved and the closing date.
You may be able to open a brokerage account with your bank, which you can use to invest in stocks, bonds, mutual funds, and other financial products. You may also be eligible to open some types of tax-advantaged accounts, such as a regular IRA or a Roth IRA, typically used to save and invest for retirement.
Also Read: Are Savings Bonds Good Investments?
Money Market Accounts
Money market accounts (MMAs) combine the benefits of both a savings and a checking account. These accounts are available at both brick-and-mortar and internet institutions.
You can earn interest on your savings by using these accounts, also known as money market savings accounts. Generally, the interest rates are higher than traditional savings accounts. You could also write cheques from your account or use an ATM or debit card to get cash.
Mobile App Access to Your Bank
Mobile banking has progressed rapidly. Mobile check deposits, for instance, were once considered cutting-edge. With frictionless money transfers, bill-paying, ATM locators, and other convenience features, consumers have come to expect this level of convenience.
You can even track accounts at many financial institutions with some apps. They may also provide budgeting tools and financial wellness features. Some apps transform your phone into a digital wallet.
Is Online Banking Safe?
Banks take numerous safeguards to ensure the security of your online account. Encrypted websites, timed log-outs, and several authentication processes are among them. You can get more information from your bank.
Using the internet to access your bank account usually is safe. Making a transaction is easy as long as you enter the necessary information and follow a few simple rules:
- Check your account frequently and notify your bank if there is any abnormal activity.
- Don’t respond to emails claiming to be from your bank and requesting personal information or passwords.
- At the end of each online banking session, be sure to log out.
- To access your bank account, only use secure Wi-Fi connections.
- Because public wi-fi networks are frequently insecure, it’s best to avoid using them for banking or shopping. It’s safer to utilize your 3G or 4G connection with your phone or tablet when you’re out and about.
- Make sure your operating system and anti-virus software are updated.
- Choose a strong password by combining three random words, and don’t use the same password for many accounts.
Also Read: How Veterans Can Avoid Online Bank Fraud
Who Online Banking Is Best For?
Online-only banks are ideal for people who enjoy digital banking and prefer to do all of their banking online.
Still on the fence about whether or not an online bank is good for you? Run your decision through a “mental checklist” before making your decision.
✅ Do you feel comfortable with technology?
✅ Is going to the bank a hassle for you?
✅ Do you desire a faster return on your investment?
✅ Are you looking to reduce your bank fees?
✅ Is 24/7 customer support important to you so you can get help anywhere, anytime?
Once you’ve answered yes to all of these questions, you are ready to close your traditional bank account and open an online one.
Who Should Skip Online Banking
Many checking accounts now include online banking and mobile deposit as essential features? For many people, a physical bank isn’t necessary. In fact, because of their reduced overhead costs, many internet banks provide far more affordable rates and fees.
But does the presence of these conveniences imply that everyone requires them? Possibly not. Here are some reasons why online banking may not be suitable for you:
- Unavailability of secure internet connection
If you reside in the middle of nowhere and don’t have access to a secure internet connection, online banking is generally not for you because it will be challenging to pay bills or transfer payments. And if you choose an online-only bank, you may not be able to access your funds in any other way. As a result, a traditional bank is probably a better choice for you.
- You need to deposit large checks or cash frequently
Cash deposits into online bank accounts aren’t always possible, albeit a few online banks have ATM networks that accept your deposit. Still, depositing cash this way takes a little longer, and you might not feel safe doing so if you’re dealing with huge sums.
Some banks also prohibit you from using mobile deposits to deposit checks worth more than a specific amount.
- Having face-to-face contact is more convenient for you
Online banks can charge lower fees and provide better rates because they don’t have to pay to run a vast branch network. However, the unintended consequence is that getting live assistance when you need it is difficult. In most situations, you communicate with someone by phone or live chat, and you never converse with the same individual twice.
Most people prefer this method of communication since they seldom communicate with their bankers. In contrast, you can receive personalized service at a brick-and-mortar bank.
Benefits of Online Banking
There’s no mystery why virtual banks are so popular. Among the many advantages of online banking are:
1. Higher Interest Rate
Deposit accounts at online banks feature greater yearly percentage yields. The top online savings accounts, for example, pay out an annual percentage yield (APY) of roughly 0.45 percent. In comparison, the national average savings rate is 0.06%, and some of the largest brick-and-mortar banks offer savings accounts with an annual percentage yield of only 0.01%.
A few percentage points may not seem like much, but it counts a lot when your balance is significant. When $10,000 is deposited for a year, it earns a dollar at 0.01%; at 0.45%, it gains a little more than $45.
2. Lower Fees
Banks that operate online charge little or no fees since they don’t have to maintain any branches. Many online accounts, for example, do not charge monthly service costs, and some do not charge overdraft fees.
In addition, online banks require a lower average balance to avoid maintenance fees, a lower opening balance, and lower costs for overdrafts, insufficient funds, and online bill pay.
3. New Technologies
An online bank only accepts transactions made online. Due to this, they are more likely than traditional banks to offer cutting-edge online and mobile banking capabilities, such as mobile check deposits.
Banks online even provide debit cards that can be used with mobile payments apps such as Apple Pay.
4. Secure Sites
Many consumers are hesitant to utilize online banking to fear their financial information being stolen by hackers. Banks now store consumer data in large data centers, making traditional accounts just as vulnerable as online ones.
In addition, top internet banks, like brick-and-mortar banks, are FDIC-insured. Having this insurance means you are covered up to $250,000 in case of theft.
5. Added Convenience
Internet banks provide consumers with the convenience of banking whenever and wherever they want. You can access your bank accounts and services anytime, from any computer or mobile device.
Rather than driving to the bank and waiting in line, they can conduct business at any time of day or night using a website or mobile app. You may make deposits, bill payments, and transfers anywhere you have an Internet connection.
Also Read: Military Banking for Veterans Handbook 2021
Disadvantages of Online Banking
Although online banking has numerous advantages; it also has certain disadvantages. While online banking is convenient, some tasks are only available at a bank branch.
Here are some of the drawbacks of online banks:
1. Absence of Dedicated ATMs
Traditional banks, such as Bank of America and Chase, have extensive ATM networks throughout the United States. Although online banks do not have their ATMs, they have negotiated with ATM networks to allow their customers to make free withdrawals.
For instance, Ally Bank, one of the first online banks, has partnered with the AllPoint network, which has 43,000 ATMs across the United States.
2. Making Deposits Is More Difficult
Handling currency might be difficult when there are no physical sites. If you routinely get paid in cash, find out if your bank allows you to deposit funds at an ATM or a retail location.
When it comes to when the funds must be in your account, deposits made this way are not subject to the same regulations as traditional deposits. Furthermore, many online banks prohibit you from depositing funds into your account.
3. Limited Services
Internet-only banks don’t always offer the same breadth of services as traditional banks. Many Internet banks, for example, do not provide home or business loans.
4. No Face-to-Face Interaction
A personal relationship with your banker is something that no internet bank can deliver. That may be a deal-breaker for some.
They prefer to interact with someone who knows their name and can provide personalized guidance. They also want to talk to someone in person if they have a big issue with their accounts, such as a lost ATM deposit or a clerical error.
5. Limitations on Transactions
Online savings accounts have the same six-transaction restriction as traditional bank savings accounts. Additionally, they may also restrict how much you can withdraw from an ATM. If your only cash account is an online bank, you may find yourself in a bind in an emergency.
Choosing an Online Bank
It’s not only a question of determining which bank offers the best interest rate, though that is crucial. You should also compare various virtual banks’ security, accessibility, and customer service.
It’s also a good idea to compare them to other banks in your area to see if a local bank better suits your needs. The following step is to determine which online bank is the greatest fit for you.
Step 1: Comparison of interest rates.
The higher interest rates are one of the most appealing aspects of moving to an Internet-only bank. If you cannot obtain a rate worth switching for, it’s pointless to switch.
Step 2: Ensure your security.
The most reliable method of ensuring the safety of funds in your online bank account is to confirm the bank belongs to the FDIC.
Step 3: Find out how you can access your money.
It’s pointless to store your money in a bank if you can’t access it when you need it. Find out how easy it will be to make deposits and withdrawals from your account before signing up with an online bank.
Look for details about the bank’s ATM network as well. Because ATMs are the only means to withdraw money from an online account, it’s critical to ensure that your area has plenty of them. Look for ATMs near your house, business, and other places you go weekly.
Step 4: Check out the Customer Service Ratings.
Customer service is a final consideration. Consumer Reports’ most recent bank ratings are the best method to learn how banks perform in your area.
How to Open a Bank Account Online
It is convenient and easy to open a bank account online. The process takes only a few minutes and saves you a trip to the bank. You may also be limited to this option if you create an online bank account. The best online banks are FDIC-insured, provide more excellent interest rates than traditional brick-and-mortar banks, and charge low or no online banking fees.
1. Decide What Type of Account You Want.
Before you begin the application, you must make two crucial decisions:
Do you have a checking account, a savings account, or anything else? Determine the principal goal of this new account. If you need money to pay regular bills, create an online bank checking account and ensure it doesn’t impose excessive fees (or that you can get them waived). If the money goes into a savings account, be sure the account has a reasonable interest rate. To analyze your alternatives, think about how you’ll use this new account.
Is it better to have a single or joint account? You are the lone owner of a single account. Joint accounts are ones in which you share ownership with someone else, usually a family member or significant other.
2. Gather Your Personal Information and Documents Ahead of Time.
Here’s the paperwork you’ll need to start an online bank account. This information is also required for anyone who will be a joint account owner.
- If you are not a citizen, a Social Security number or another identification number.
- You’ll need a valid driver’s license or other government-issued identification.
- If your new account requires a deposit, you’ll also need the debit card details, as well as the routing and account numbers for another bank account you possess.
3. Submit Your Application Along With Your Personal Information.
To open an online bank account, you’ll need to supply personal information. Fill out the application with your personal information using a secure home internet connection or another reliable network, which will most likely include:
- Date of birth
- Contact information,
- All of the previously gathered data, including Social Security numbers, IDs, and debit cards.
4. Deposit Funds Into Your Online Bank Account.
You’ll have to make an initial deposit when you start an account online. Typically, this entails transferring funds from another account. You might be able to fund with a check or money order if your bank is entirely online. In addition, if your bank has a local branch, you can deposit cash there as well.
Choose an amount that meets any minimum balance or starting deposit requirements once you’ve entered the details for the transfer. The funds will be processed within a few days, and you will manage your new account.
To Wrap It Up
Overall, whether you choose an online or traditional bank is highly dependent on your banking demands and your preferences and budget. Traditional banks may be more your speed if you’re looking for a low-cost, independent option, while online banking may be more your speed if you’re looking for a high-budget, high-features option.
No rule says you can only have one account. You might decide to keep your checking account at the bank of your choice, but use online savings account for the higher interest rates. It’s entirely up to you. Regardless of how you slice it, you’ll be putting your money in a safe, stable location where it can grow, which is the whole goal of a bank account.