The Biggest Pros and Cons of Online Banks

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KEY POINTS

  • Online banks often have lower fees than traditional banks.
  • They may allow higher mobile deposits as well.
  • There are still some downsides, including challenges with depositing cash.

There are plenty of good reasons to opt for online banking -- but there are some downsides too.

Today, when you open a bank account, you don't have to stick with a bank that's located in your area -- or even choose a financial institution that has any physical locations at all. In fact, there are a huge number of great online banks that are eager for your business.

Not only has the world of online banking offered consumers a broader array of choices, but many of the online banks are actually better than their counterparts with physical branches. They aren't necessarily right for everyone, though, as there are pros and cons to consider with this type of financial institution.

The biggest advantages of online banking

The biggest advantages of online banking include the following:

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  • Many online banks offer lower fees: It's common to owe account maintenance fees, ATM fees, overdraft fees, and a host of other fees when you have a local bank. But online banks have eliminated many of these added costs, making it cheaper to be a customer. Of course, you'll want to shop around and read the fine print of any online bank you're considering to make sure it really has eliminated the costs you're trying to avoid.
  • You can often make larger mobile deposits: Online banks usually allow you to deposit much larger checks via your phone or tablet than local banks. If you hate having to visit a branch to make a deposit and you often receive large checks, this alone could be worth making the switch.
  • You may be offered a better interest rate: Online high-yield savings accounts often pay some of the highest interest rates of any financial institution. Surprisingly, it's also common for online banks to offer to pay interest on checking account balances. While some local banks do this as well, online financial institutions may be more apt to offer this incentive, and the interest rates they do offer are usually higher than those made available by their brick-and-mortar counterparts.
  • Your bank (and cash) may be more accessible on your schedule: Online banks don't offer in-person customer service, but many aim to make up for it by making help accessible via phone and online chat 24/7. Many also have a huge network of ATM partners or will cover fees for ATM use so you can get your money more easily without having to look for your specific bank branch ATM to avoid added costs.

The biggest disadvantages of online banking

On the flip side, here are the biggest disadvantages of online banking:

  • It can be difficult to deposit cash: Depositing cash can be almost impossible with some online banks, since there's no physical location to take the money to. You may have to deposit the money into a local bank branch and transfer it over wirelessly, or may be forced to incur added costs for a money order or to make an in-person deposit with a partner.
  • You won't have a physical branch to visit: If you need to talk with a person face-to-face to get financial help with your account, this won't be possible with an online bank.
  • Many online banks offer more limited account options: Many online banks only offer limited services, such as checking and savings accounts. If you want to have multiple different financial products, such as a bank account, mortgage, and credit card all with one institution, then a larger local bank may be your best bet.

Ultimately, you'll need to weigh each of these benefits and disadvantages to decide what's right for you. For many people, online banking wins out -- but if you need more hands-on help, prefer to keep all your accounts in one place, or deposit cash often, then sticking with your trusty local bank may be a better bet.

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