Guide to banking online
Chances are, you’re managing money differently today than you were a few years ago. If your shopping, spending, and money management have moved online and onto your phone, you might want to consider whether an online-only bank is a fit for you. At a traditional bank, fees and interest charges support retail branches and other services you may no longer want or need.
Online banks don’t have retail locations. Instead, they hone in on providing online loans and deposit accounts with great rates, low fees, and digital features that make managing money easier now.
Would an online bank work for you? Read on to learn more about the benefits of online banking.
How managing money went digital
Managing money online is now a primary way to transact. How many of these digital money moves do you recognize?
Using your phone to deposit checks
Shopping and paying bills online
Using an app to pay or reimburse friends and family
Opening a bank, investment, or cryptocurrency account online
Paying a contractor through a payment app
Using a digital wallet
Adding multi-factor authentication (single-use passcodes) to your accounts for security
Monitoring your credit online
You may check your real-time account balance before making a big purchase. You receive text alerts that remind you to pay bills. You use an app to pay a babysitter or split a check.
Now that your relationship with money has gone mostly digital, how well does your bank support that relationship? If you’re not sure how to answer, you might want to look into an online bank.
What is online banking?
Online banking is what you do whenever you use a bank’s website or mobile app, but it also refers to a type of bank that focuses on digital banking. These banks don’t rely on retail locations to serve their customers (or members).
How does online banking work?
Just about everything happens online or by mobile app. You can:
Use a banking website to open and access your accounts;
Download an app to get an instant read on transactions, transfer money between accounts, or send money to friends and family;
Pay bills and receive security alerts on your phone; and
Use any ATM to access cash (you may receive a refund for out-of-network fees).
Online banking isn’t new: People have been using their bank’s websites to view accounts since the 1990s and mobile banking apps have been around for more than a decade. Online banks are taking digital banking to a new level by changing the economics of financial services.
Branch locations cost money to operate along with other trappings of traditional banking, like paper statements and paper checks. By focusing on the key digital banking features consumers want, and ditching legacy features that drive up overhead, online banks can provide a great digital experience while keeping costs low.
These savings translate to competitive rates on loans and savings, or rewards checking accounts without maintenance fees—to name a few. You won’t get a nicely decorated branch to visit, but you will get the convenience of a bank that never requires you to visit a branch. And with less overhead, you may pay less and receive more on the loans, checking, and savings accounts you want.
Traditional banks vs. Credit unions vs. Online banks
When you shop for a bank online, you’ll find a wealth of options. Not every bank you find online is an online bank. Some, like credit unions, aren’t banks at all. Here’s a quick rundown on three common types of financial institutions:
Traditional banks
Traditional banks deliver a familiar mix of checking, savings, credit, and loans. Expect to find a network of national or regional retail branch locations, branded ATMs, online banking, mobile apps, and telephone-based customer service. Although banks can range from small community banks to nationwide megabanks, banks on the whole are full-service operations - a good place to look when you need a cashier’s check or safe deposit box. They’re also for-profit companies with profit margins to manage and shareholders to answer to.
Credit unions
Credit unions offer many of the same products and services as banks, but with a member-based business model that is not-for-profit. Rates and fees are typically competitive, and personalized service is a hallmark. Credit union membership is often based on where you live or work.
You can go to mycreditunion.gov to find credit unions you are eligible to join. Expect a range when it comes to digital experience: Some credit unions are tech-forward while others are a few steps behind.
Online banks
Online banks center on digital experience instead of maintaining branch locations or their own network of ATMs. Online banks typically offer lower rates and fees on loans and higher interest on checking and savings and have strong mobile apps and customer service features.
As an example, Rewards Checking at LendingClub Bank pays cash back rewards on Qualified Purchases using a debit card tied to Eligible Accounts, no maintenance fees, and no minimum balance requirements (aside from $25 to open the account).1 Like traditional banks, online banks are regulated, for-profit companies with profit margins and shareholders to manage.
Pros and cons of banking online
If you’re comfortable managing your money digitally, an online bank may give you a better deal on basics like checking, savings, and loans. Because online banks are built to function virtually, they’re invested in offering technology that works. Of course, you should check out any bank you’re considering individually, to make sure they have the accounts, features, and competitive rates you want.
Do you need a branch?
Some people prefer banking face-to-face. You might use in-branch services frequently - for example, if you own a small business and make regular large cash deposits. Maybe you’ve developed personal relationships with the people at your bank branch, and that gives you a sense of security and belonging.
On the other hand, maybe you haven’t seen the inside of a bank branch in years. Maybe you only go grudgingly, when you can’t accomplish what you need online or at an ATM. Maybe your branch is now populated with automated tellers that handle tasks efficiently but can’t deliver a personal touch. Only you know whether you really need a branch to manage your money comfortably and effectively.
Is an online bank safe?
Online banks that are insured by the Federal Deposit Insurance Corporation (FDIC) offer the same protections as traditional banks. The FDIC insures up to $250,000 per depositor, per bank, for each ownership category including single accounts, joint accounts, trust accounts, and so on. Credit unions have similar insurance through the National Credit Union Association (NCUA).
Wherever you bank, online security is a serious concern. Card-not-present (online) fraud is rising; security features that protect your account data and identity are a must. Look for security tools like single-use passcodes and biometric (face ID or fingerprint) identification that works with your phone. Online banks are constantly improving security technology to stay ahead of fraud. Avoid public Wi-Fi when you’re banking or shopping. Seek out and use your bank’s security features to keep your data as safe as possible.
9 features you may find at an online bank
One of the best reasons to consider an online bank is their range of convenient, money-saving products and features. Here are nine useful items you might find at an online bank:
Fee-free rewards checking with no minimum balance requirement
High-yield savings accounts and CDs that pay top interest rates
A mobile banking app that covers all your basic banking
Nationwide ATM access with rebates on out-of-network fees
Faster direct deposits that let you access your paycheck sooner
Loans with competitive rates and fast online application, approval, and funding
24/7 customer service by chat or phone
Security features like multi-factor authentication and alerts that keep you connected to your accounts in real time
FDIC insurance (Member FDIC)
The bottom line
In a digital-first world, an online bank can provide you with the loans, checking, and savings you want, with lower costs and a higher upside. If you already manage your finances in the digital realm, choosing a bank that does everything online and by app might not require much adjustment. Choose the right banking partner (or partners), plug in, and enjoy the benefits of banking online.
Terms and Conditions
1. Rewards Checking Cash Back Rewards: The Debit Card Rewards Program (“Cash Back Rewards”) provides 1.00% cash-back on all Qualified Purchases using a debit card tied to Eligible Accounts. Eligible Accounts are: Rewards Checking accounts that meet the following requirements for the calendar month in review: (1) Maintain an average monthly balance of at least $2,500.00; or (2) Receives at least $2,500.00 in Qualifying Direct Deposits.
Qualifying Direct Deposits are defined as: Recurring Automated Clearing House (ACH) credits, including payroll, pension or government payments (such as Social Security) made by your employer, or an outside agency. We may require documentation to verify that credits are Qualifying Direct Deposits. Qualifying Direct Deposits do not include peer to peer payments or ACH transfers (funds transfers) from your external accounts.
Qualified Purchases are defined as: Signature-based purchases made using the debit card tied to an Eligible Account. These are “credit” purchases that can be made in stores and online. To make a signature-based purchase, select “credit” rather than debit at point-of-sale kiosks. The “credit” option is most often pre-selected when making purchases online using a debit card. Online subscription payments may not be considered signature-based purchases. The payment transaction type (signature-based or other) is ultimately decided by the merchant and is based on how the transaction is transmitted at the time of processing. Qualified Purchases do not include: (1) any goods or services purchased that are returned or otherwise credited to your Eligible Account; (2) unlawful purchases; or (3) purchases of currency, cash or cash equivalents (including, without limitation, currency from the U.S. Mint, Travelers Checks, gift cards, cryptocurrency, casino chips, peer to peer payments, prepaid debit cards, account openings, loan payments, or other cash equivalents). Any earned Cash Back Rewards will be credited to your account on or before the 10th calendar day of the next calendar month. The Eligible Account must be open and active at the time the Cash Back Reward is credited.
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