Taking your money digital | The pros & cons of online banking

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Online banks have provided a much needed alternative in the banking sphere. Before the rise of the online banks, your pickings were pretty slim as a consumer. You either went with a big national bank for convenience purposes or with a local bank or credit union. The latter usually offered better customer service, but didn’t always have the convenience features that the big banks doled out.

That has all changed since online banks have risen to legitimate competitor status. Now, if you are willing to do your homework and shop around, banking choices abound. And those choices could lead you to a better banking relationship as well as a much better rate on your savings account. So let’s take a look at the pros and cons of having an account with an online bank — starting with the pros.


Online banks have changed the way many of us bank. They’ve provided added convenience and technological ease. The big national banks have taken a long time to step their game up with an online and app-based presence that the best online banks have robustly offered to their customers for years. For instance, USAA was the first bank — online, of course — to offer mobile check deposits. They started this feature beloved by customers years ahead of most of the other banks. Investment firm Charles Schwab has an online bank that refunds all of your ATM fees with no questions asked. If you want to be first in line for banking features that bring added benefits and flexibility to your life, there’s no question that online banks are your best bet.

Savings rates

Do you like losing money every month in your current banking relationship? Odds are if you are currently with a large national bank that’s exactly what is happening. Most mega banks are seriously still paying .01% on your money — and charging you fees just to have an account with them. That’s crazy! The most competitive online banks are paying 1% or more. And even the ones that aren’t in that sphere are paying a healthy rate around 0.75%. Savings rates will continue to rise over the coming years and this discrepancy will likely grow even further. Check out sites like Bankrate.com to find the online banks paying the highest rates.

On top of the high savings rates, online banks don’t fee their customers into oblivion every month. Most big banks make you jump through a lot of hoops to avoid monthly account fees, account minimum fees, ATM fees, and more. Online banks typically shy away from all of those pesky little fees.

Customer service

The savings rates discussed above create a stark contrast between online banks and the major national banks. The customer service differences, however, create an even more blatant divergence. If you look at lists of the most hated companies in America, the big banks like Wells Fargo and Bank of America almost always rank in the top 5. If you want to speak to a human on the phone, well… good luck.

The online banks have this piece of the puzzle pretty well figured out. Banks like Capital One 360 (formerly ING Direct) put you in touch with a human almost instantly. None of those awful prompts to press 3, then *, then say what you are trying to accomplish, etc. Many online banks also offer helpful online chat boxes to quickly help you solve a problem while at your computer. If you are with a big bank and haven’t had a major customer-no-service issue, consider yourself lucky – and don’t double down on those odds. Having an account with a bank that considers it important to provide good customer service really is a joy.

And now, let’s discuss the cons of creating an account with an online bank.

Cash deposits

If you tend to use cash a fair amount and like to be able to run by your bank and make a deposit from time to time, online banks won’t work very well for you. This is when having an account with your credit union or a small local bank comes in really handy. The great thing is, you can have your cake and eat it too. Having an account with a credit union and an online bank is like hitting the money management jackpot.

No face-to-face

If you want in-person customer service, a credit union is probably your best bet. Online banks, of course, don’t have branches for you to walk in if you find yourself having an issue. As noted earlier, the customer service from many online banks is top notch. Discover Bank, for instance, has fantastic 24/7 customer support from a live person who will walk through online banking and app features with you. You just won’t get to look the person you are speaking with in the eyes.


The big banks are trying to catch up to the online banks in terms of convenience. They’ve made snazzier apps and most of those apps mimic those of the online banks pretty closely. However, there are still major differences between banking online and having an account with one of the national banks. And a vast number of Americans would be far better served joining an online bank and ditching the relationship with their big bank that offers less convenience and fewer rewards.

If after reading this list you’ve decided that an online bank might be the right move for you, check out our list of some of the best online banks.

Also, if you are looking to get the best rate of return on your emergency fund or just aren’t earning much on your savings right now, check out the fantastic interest rate offering from CIT Bank which pays you 1.85% via its money market right now!

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