The Pros and Cons of Banking Online

What's so great about live bank tellers, anyway?


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Bank fees often strike fear in the heart of the average banking customer. According to a survey by Bankrate, a company that reports on banks and banking, customers continue to get slammed with higher fees, ranging from ATM charges to minimum-balance fees. And some customers are even charged a fee just to speak to a real live bank teller!

In a recent checking account pricing study, Bankrate found that interest-bearing checking account customers fared the worst. The average interest-bearing checking account earns only .27 percent interest, while account holders pay $10.86 on average in monthly fees.

I've railed against banking fees before, and I've told you about how my personal experiences sent me looking for another place to do business. I'm not going to lodge any new complaints. Instead I'd like to show you one alternative. If you too are sick of the high fees you pay for poor customer service, you should investigate online banking. Many traditional banks offer some online services, but the very cheapest choices you'll find are Internet-only banks, which operate only online. You can get the same services online that you're used to from traditional banks, such as checking and savings accounts, CDs, and other financial products.

Pros

The biggest plus to banking online is the price. Because Internet-only banks don't have the expense of maintaining hundreds of local branches, their overall cost of doing business is lower than it is for their traditional counterparts. They pass the savings on to consumers in two main ways: higher interest and lower fees.

Another big advantage is that you'll have 24-hour access to your account, for free.

Cons

Deposits. Although you may regularly visit your bank branch to make deposits, that's not an option with Internet-only banks. If your employer doesn't offer direct deposit -- electronically wiring your paycheck to your bank -- you'll have to use snail mail (the regular old U.S. Postal Service) to get money into your account.

If you live paycheck to paycheck, this might be tough for you. You'll have to wait about five business days for your check to get to your account and then another few days for the check to clear. So if you don't have extra money in your account as a cushion, you'll have to factor in the extra time it will take before new deposits are available. And if your check ever gets lost in the mail, you could be out of luck.

ATM availability. Check the ATM availability offered by the Internet-only bank you're considering. As you've probably experienced, many banks charge fees to noncustomers who use their ATMs. Because Internet-only banks don't have their own ATM network, you'll be charged noncustomer fees by the banks whose ATMs you use.

Internet-only banks are trying to offset this negative by reimbursing account holders for up to four ATM noncustomer fees per month. That means that even though you'll be charged the noncustomer fee, the Internet-only bank will give you your money back. Internet-only banks understand these problems, and many are taking steps to overcome them. For example, they're negotiating with large ATM networks to let Internet-only customers make deposits at local ATMs and have those deposits treated just as if they were made at a local bank. Ask the Internet-only bank you're interested in what they're doing to fix the issues you're most concerned about. You may find you like the answers you're given.

To research which Internet bank best suits your banking style, visit Bankrate.com. Don't let your bank get the best of you and your wallet. Instead, flip on your computer and treat yourself to a little more cash.

Bankrate.com

Karin Price Mueller is the author of Online Money Management (Microsoft Press, 2001).

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