The Advantages and Disadvantages of Online Banking

The advantages and disadvantages of online banking are both persuasive, and many people nowadays use a hybrid of both internet banking and a physical banking account with a local bank. While online banking doesn't seem as tangible as withdrawing and depositing your cold hard cash, you can do almost anything with online banking that you did at your bank branch.

Save Time and Money
Arguably one of the biggest advantages of online banking is saving time and money. When you use online banking, you can check your account, schedule bill payments and manage deposits with a few clicks of the mouse. Even better, you have control of your money 24/7; not on a 9-to-5 physical banking schedule at some place across town.

No more phone calls or trips to the ATM to check your balance; no more fussing around with paper bills, losing one and having to go search for it, and missing a payment; and no more wondering whether cousin Sally has cashed her birthday check, or waiting until your paper statement arrives in the mail to find out.

Online Bill Pay
Most internet banking institutions give you the option of setting up online bill pay. By using online bill pay, you can either choose to make a one-time payment on your bills, or you can set up recurring bill payments for monthly bills, such as an auto loan, car insurance or your mortgage. This advantage of online banking is invaluable since you can set up payments anytime and know exactly when the payment is credited.

No more putting a bill in the mail and receiving a notice the next month that the check arrived late, or that the recipient didn't get around to processing it until after your deadline. Online bill pay also saves you the worry of losing a bill; manage your bills electronically, and you never have to worry about a missing piece of paper.

Interest-Earning Accounts
It's common knowledge that online savings accounts typically earn a better interest rate than the savings accounts at a bricks-and-mortar bank, but you might not realize that some internet banking institutions also offer interest-earning checking accounts. Internet banking interest rates for checking accounts range from 0.5% to 3.40% annually. These rates rival the interest rate you'd get for a savings account at any traditional banking institution, and you're unlikely to find an interest-bearing checking account at a regular bank, either.

Funny Money
While internet banking makes it easier for you to manage your money, it might make it easier to forget to check how much you have so you can budget. Online banking is a lot like using a credit card-the easy access makes it easier to spend without thinking about why you are spending. You can set up e-mail alerts to let you know how when your account dips below a certain number, but nothing beats looking at it yourself and keeping your checkbook balanced.

Also, when you get a credit-card statement in the mail and open it on a monthly basis, you are instantly reminded to check if any strange charges appear on your account. It's easier to forget to keep track of such information online, and you'll need to have good money management habits.

Security
Hackers can break into nearly any computer system, so how can you be sure they won't break into your bank's system? You can't, but any online bank site you consider should have statements on the type of security they use. You should also e-mail the bank or head to the bank branch to find out exactly what would happen if there were a security breach and press the point or go to another bank if the answer is vague. In general, you should think of your money as being as safe online as it would be in a vault, but it is your responsibility to find out just how secure the bank is, if it is FDIC-insured and if they keep their security systems up-to-date. Finally, you should also make sure that you use security software on your personal computer to reduce the chance that anyone can get your personal data.

You Might Miss That Physical Location
While online banking has many advantages, one of the biggest disadvantages is the absence of a physical location. Being able to make deposits to a physical bank account assures peace of mind; you don't have to wonder if your check is lost in the mail or when it's going to be credited to your account.

You might also want that physical location for other reasons. Finances are complicated enough, and it's not a stretch to think that you might have a question about a transaction or fee someday. One of the disadvantages of online banking is that you can't speak to a customer service representative in person; you must either send an e-mail or call a number and wait for your call to be answered. If it's a sensitive question or if you are dealing with a mistake on your statement, you might get an answer faster if you go to a bank branch.

Internet Banking That Makes Sense: The Hybrid Approach
While an increasing number of companies have gone electronic, giving you the option of checking statements and paying online, some occasions even today simply require doing business on paper. Some companies aren't set up for online banking, so you'll need paper checks for those businesses. If you rent an apartment, your landlord probably isn't equipped to receive payments electronically, so you'll need a check to pay rent. While it's convenient to be able to use electronic bill pay, you're going to need to use a paper check at some point.

Deposits constitute another disadvantage of online banking. If you use a bank that doesn't have a physical location, you'll have to mail your deposits to your online bank. In these cases, you may be waiting a week or two for your deposit to be received and processed, and that's time in which you can't access that money. Sometimes things are lost in the mail, so the security of making a deposit by mail is questionable. Many people who use banks that exist solely online keep a second banking account at a nearby physical bank to make deposits and then transfer them electronically to their internet banking institution.

Even if you're inclined to rely solely on internet banking, the disadvantages of online banking are strong enough to make it prudent to keep a second banking account at a physical bank. Finding a physical bank that offers online banking provides the best of both worlds, giving you a location for fast and easy deposits, but the freedom to access your money anytime.