The pandemic encouraged more people to shop and manage their money online. The number of adults with financial accounts from banks and mobile cash providers grew from 68 percent in 2017 to 76 percent in 2021.
Online banking allows people to spend and manage their finances without the need to visit their banks. Today, consumers can even open financial accounts from online-only banks. If you want to open an online bank account, here’s what you need to know.
What You Need To Know About Online Accounts
Online banks are finance companies that function like traditional banks without physical locations. These banks offer financial services solely through mobile applications and websites.
They do not have brick-and-mortar branches and hire tellers. Instead, these companies conduct online operations, offering clients higher interest rates and lower fees than other financial institutions and traditional banks.
Opening an online bank account is faster and easier than traditional banking transactions. Users can complete the process through an app or website, anywhere and anytime.
Pros of Online Bank Accounts
Many people today conduct their financial transactions online now that traditional banks have also set up digital platforms. The number of people who use digital banking is forecasted to grow to 217 million by 2025, highlighting the continued demand for digital financial services.
Despite the growing digital presence of traditional finance institutions, online-only companies still offer some clear advantages.
With no infrastructure and overhead costs, online banks can offer clients higher annual percentage yields (APYs) or interest rates on savings.
Some online banks offer one percent to two percent higher interest rates than traditional banks. While this difference may seem insignificant, the amount can accumulate if the user deposits a high balance.
When opening an online-only bank account, you do not have to worry about a wide range of fees typically associated with traditional banks. You do not have to pay additional expenses while making direct deposits or paying by check or debit card.
Better customer experiences
Traditional banks invest heavily in improving their virtual presence and service, including launching apps and upgrading websites. Still, online banks appear to retain a competitive advantage when it comes to the banking experience.
Online banks allow you to manage your finances regardless of location and the time of day. You can withdraw or deposit funds to your account as long as you have a device and a strong internet connection.
Today, many online banks offer 24/7 customer support by live chat or phone, allowing them to address client concerns anytime.
Cons of Online Bank Accounts
In a recent global survey from research and insights company UserTesting, 27 percent of respondents still exclusively use traditional banks despite recent technological advancements in digital banking. Read below to know the disadvantages of online banks that could have contributed to the survey’s results.
Online banks do not have brick-and-mortar or physical branches, so you can only seek customer support via phone, secure messaging, live chat, and social media. While these options may be enough for younger and tech-savvy consumers, they may be challenging for older clients who prefer in-person support.
Moreover, it may be challenging to address more complex financial concerns without a physical branch to visit.
Less flexible transactions
In-person contact with a bank teller not only allows your bank to get to know you and understand your finances, but it is also crucial for addressing complex financial issues.
For example, depositing cash is one of today’s most basic banking transactions. Online banks allow users to make deposits through banking apps. However, if the app experiences a problem or is under maintenance, you might be unable to complete your transaction. You must wait until the bank completes the maintenance or fixes the issue before depositing safely.
Additionally, you might experience issues while completing international transactions with some online banks. Addressing these concerns can be more challenging without a physical branch to visit.
No cash deposits
It can be easy to deposit checks using your smartphone and a banking app. Some online banks also have ATM networks where you can deposit cash. However, not all ATM networks have this feature.
If your banking app is offline, you might have to send your funds through a traditional bank account before transferring them to your online account.
Limited ATM network
Unlike traditional banks with large networks of ATMs, online banks only have a limited ATM network. You might have to settle for using a third-party ATM that requires an additional fee every time you complete a transaction.
If you need regular access to cash, you must look for an online bank with a good network of ATMs. You can also try the online banks that reimburse users for the fees they pay when using third-party ATMs.
Find Out if an Online Bank Account Is Right for You
Knowing the advantages and disadvantages of online-only bank accounts will help you determine if opening an online account is the right choice. You can make informed financial decisions by knowing and understanding the crucial risks and benefits associated with online banks.