It used to be that banking was all done in person and through the mail. You would go to the bank to cash or deposit your paycheck. You would make another visit to withdraw cash. When you wanted to pay a bill, you wrote a check and put it in the mail. You paid for things at retail stores using cash, checks, or debit cards. How things have changed.
Not only can most payments be handled electronically these days, you do not even have to do business with a brick-and-mortar bank. You can deposit your money with an online bank instead. An online bank provides all the functionality of a traditional bank but without retail branches. Everything is handled online – from deposits to online bill pay and taking a loan out for a new car.
Needless to say that there are plenty of consumers who are wary of online banks. They prefer banking the old-fashioned way, at least in terms of opening an account at a brick-and-mortar branch. Yet online banking is worth looking into. If you are so inclined, here are the top five things you should know about online banks:
1. They Can Be Insured
Online banks can be established just like traditional banks in terms of business structure. They can also be set up as private financial services companies. Here’s the thing: any online bank that wishes to comply with certain federal regulations can be insured by the Federal Deposit Insurance Corporation (FDIC). Being FDIC-insured is all about guaranteeing customers do not lose their money in the event of a bank collapse.
It is important for consumers who want that extra protection to look for an online bank with a website that shows the FDIC logo. That logo tells you the bank is insured. If you are not worried about insuring your deposits, that’s no problem either.
2. Customer Service is Online
Customer service through traditional brick-and-mortar banks is offered both in-person and online. Phone service is also available. The only difference with online banks is that the in-person service is not available. It cannot be offered where there are no brick-and-mortar retail branches.
The online model of banking also encourages online customer service. So while a good many online banks offer toll-free numbers that you can call for customer service, they want customers to make use of live chat, e-mail, and support ticket systems. Chat gives you the best chances of real-time customer service.
One of the downsides here is that communicating online can make it difficult to explain exactly what you need. Most of us just do not seem to communicate as clearly through chat and e-mail. But the opposite side of that coin is the fact that online support leaves an electronic record trail behind. Those records can be returned to if need be.
3. Security Risks Are Reasonable
Some people are terrified of online banking because of its inherent security risks. Such concerns are reasonable – to a certain extent. However, an online bank is no more at risk than a traditional bank with online services. Neither one is at more risk than a credit card company, grocery store chain, online retailer, etc.
Online banks utilize the same types of security strategies as any other business in any other industry. Data transmissions are encrypted and networks are hardened against attacks. Professional IT specialists constantly monitor networks for suspicious activity. As such, anyone who is not afraid to do other things online should not be afraid of online banking.
Obviously, you do not want to be careless with banking information. You want to protect usernames and passwords at all costs. Yet the risks associated with online banking are reasonable. Online banks are as safe and brick-and-mortar banks.
4. Deposits Work Differently
A lack of brick-and-mortar branches makes depositing at an online bank a little bit different. If you were to receive a personal check from someone else for example, there is no brick-and-mortar branch you can visit to deposit it. So what do you do? The most common way of depositing a paper check is to take a picture of both sides using your bank’s app. The bank utilizes the information from those pictures to initiate a deposit into your account.
Deposits really aren’t a big deal in the 21st century. Most of us are paid via direct deposit, so cashing paychecks really isn’t a concern. It is also possible to transfer funds between bank accounts owned by separate individuals. So rather than writing you a check, the other person can initiate a transfer from his account to yours.
5. Access is Never an Issue
Finally, accessing your finances is never an issue with online banking. You still have all of the options of a traditional bank. They are just accessed in different ways. For example, virtually any ATM operating on one of the nation’s major automated clearing house (ACH) networks will let you withdraw cash from your account.
Online banks offering checking accounts give you all the freedom and flexibility of paying with personal check or debit card. You can pay bills online by having money directly taken out of your bank account. Everything you can do with a brick-and-mortar bank account you can do with an online account, except for visiting with the teller standing behind the counter. That is really the biggest difference.
The only other difference you might notice is that some online banks do not offer the same menu of extra services you would find it a brick-and-mortar bank. For example, your online bank may offer traditional banking along with a small selection of loans. Yet you might not have access to things like certificates of deposit (CDs), IRAs, home equity loans, and the like. There are other online lenders more than capable of making up the difference.
It goes without saying that online banking is not for everyone. For those who do use it though, online banking gives them everything they need without having to visit a local branch and stand in line.
