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Online banking

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Online banking, also known as internet banking, e-banking or virtual banking, is an electronic payment system that enables customers of a bank or other financial institution to conduct a range of financial transactions through the financial institution's website. The online banking system will typically connect to or be part of the core banking system operated by a bank and is in contrast to branch banking which was the traditional way customers accessed banking services. Fundamentally and in mechanism, online banking, internet banking and e-banking are the same thing.

To access a financial institution's online banking facility, a customer with internet access would need to register with the institution for the service, and set up a password and other credentials for customer verification. The credentials for online banking is normally not the same as for telephone or mobile banking. Financial institutions now routinely allocate customers numbers, whether or not customers have indicated an intention to access their online banking facility.

How Online Banking Works

If you're a customer of a bank or credit union that offers online banking, you can open an account through that institution's website and manage your account after you register it for online access. At a minimum, you'll usually need the following items to register your account online:


  • An internet connection
  • A device with a web browser (a computer or smartphone, for example)
  • Your bank account number
  • Personal information to verify your identity (such as your Social Security number)1
  • Registration involves setting up a login and password. Once you complete registration, you can log in to your account and start banking online with only your internet-enabled device. Skipping a trip to the branch means you can conduct business anytime, from (almost) anywhere.

Pros of Online Banking

1. Better Interest Rates
Online-only banks tend to offer the highest annualized interest rates (measured in APY) on your deposits. This is because they don't have the overhead of brick-and-mortar banks and can pass some of the savings along to you. However, the online wing of some traditional banks may also offer competitive rates. Online banks also tend to offer lower interest rates on loans (measured in APR).

You generally want higher interest rates on savings accounts to make your money work harder for you. On the flip side, lower interest rates are desirable for loans because they reduce the total cost of the loan. It’s smart to shop around and compare online bank rates to traditional bank rates, but you’ll almost always do better online.

2. Lower Fees
Banks that let you manage your account mainly online typically cost less than traditional brick-and-mortar accounts for the same reasons they pay more in interest. You’ve got a good chance of landing a free checking account with an online bank and thereby avoiding monthly maintenance fees.

3. Online-only banks also provide a debit card that you can use to withdraw cash. Banks that belong to an ATM network may even offer free access to ATMs in that network or reimburse fees at unaffiliated ATMs.

Cons of Online Banking

Banks and credit unions with physical branches but limited online banking still have their place for a few reasons.

1. In-person Transactions
Despite the ability to deposit money via mobile deposit or withdraw it through affiliated ATMs at online banks, banking online may be impractical if you frequently make large deposits or withdrawals and need to do so through a bank teller. Some banks have a daily mobile deposit amount limit and ask you to visit an ATM or branch to make deposits exceeding that limit. This may prove difficult if your bank doesn't have a large network of free ATMs or a branch nearby. Most banks also place daily limits on the amount you can withdraw from ATMs. If you need more cash and can't convince your bank to increase the limit, you'll need to request a cash advance in person, which you can't do if you can't visit a branch.

2. Traditional banks can also provide notary services, safety deposit boxes, and official checks in an instant. You might not need those services often, but when you do, it’s typically during an important event when time is of the essence. Online-only banks lack physical branches so they don't offer these services typically. However, a traditional bank or credit union with robust online banking might.

3. Technology Issues
If you’re not comfortable with technology, banking online may come with a steep learning curve. Plus, glitches happen, and if your computer (or the bank’s) is down, you may have to put off a pressing transaction. For complex situations like pesky customer service issues or discussions about different types of loans, you might benefit from a face-to-face meeting at a traditional bank.


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