What Are the Benefits of Online Banking?

Introduction

Once upon a time, in a land far, far away, people took care of their financial matters in a building called a bank. They would come from all across the land to stand in line waiting for a bank teller to invite them to a window. There they would hand over pieces of paper along with a paper passbook to print out a record of the transaction. Or they would ask to retrieve some paper bills and subtract the total from their bank balance.

It was a much slower world back then, with lots of waiting and lots of paper. Things needed to be manually recorded (on paper), manually requested (through paper), or manually retrieved (as … yes, paper).

These days, technology allows us to do a lot of things that we could only dream of in the past. Or, well, we probably didn’t dream about it much, because we didn’t know it would be possible in the future.

But now it is possible, and many people work at jobs, get paid regularly, manage their savings, and pay their bills without ever setting foot inside a physical bank. How? Through the power of online banking.

What Is Online Banking?

Online banking is the act of using a website or mobile app to conduct financial transactions or view account activity over the internet. Nearly all financial institutions offer some type of online banking, whether it’s account access through a website, a mobile app, or both.

This advancement in technology allows people to do almost every type of service that’s available at the local branch of a brick-and-mortar bank. You can pay bills remotely, monitor your balances, send and receive money electronically, make transfers, and even deposit a check.

The main exceptions include opening certain types of accounts or changing important information, like your name. These things sometimes (but not always) require you to go in and meet with a banker. Oh, and withdrawing cash, of course. Technology still doesn’t allow us to send paper money over the internet. Hey, we’re still waiting for flying cars too, so that’s OK!

Beyond the online banking services available from physical banks, there’s also a growing number of virtual banks that don’t have any branches. Some of them even have more desirable terms — like higher annual percentage yields (APYs) on savings accounts — since they tend to have a lower overhead than brick-and-mortar outlets.

Online Banking vs Traditional Banking

Online bank services might be similar overall to what you’d find at a traditional bank, but some of the details are different.

How Does Online Banking Work?

Regardless of whether you’re dealing with a traditional bank that offers online banking services, or a virtual bank that only exists online, a lot of the processes are going to be the same. Online banking means you’re dealing with information digitally, and through the internet, whether or not brick-and-mortar branches exist.

Opening an online bank account

First things first — you need an account to use online banking. Luckily, all virtual banks and many physical banks let you open a bank account online in just a few minutes by submitting your information digitally.

To set up checking or savings accounts online, you’ll need to supply your name, date of birth, phone number, email, home address, Social Security number, and a copy of your identification, like a driver’s license or passport. You also might have to submit proof of address, like a utility bill.

Next, you need to put money in your new account. One option is to set up direct deposit with your employer, which automatically sends your weekly paycheck to your account. Sometimes you’ll even get access to your wages a couple of days early.

You can also often deposit cash through a network ATM or partner store, or use the mobile deposit feature to upload a check. The final option is to transfer funds into the account from another bank.

Transferring funds online

Depending on where it’s coming from and where it’s going, you can move money online in different ways and at different speeds. Transferring funds from your checking to your savings account within the same bank is as simple as logging in and choosing the source, destination and amount. And it usually happens instantly.

If you’re sending money elsewhere, you can do it quickly with peer-to-peer (P2P) payment services. Zelle works directly through your bank account, or you can choose third-party platforms like Venmo, PayPal, or Cash App. These applications let you send money to other people in real time, whether to split a lunch bill, pay a contractor … or for any reason at all, really.

Other processes you initiate online still take several days, like automated clearing house (ACH) and wire transfers. That’s why your credit card or utility bill payment takes some time to get posted to your account. But those are bank network processing times, and have nothing to do with actual online banking services.

Making mobile deposits

Most mobile banking apps let you easily deposit a physical paper check by entering the amount, then taking photos of the front and back with your smartphone. You can even sometimes deposit checks through your desktop computer using remote deposit capture technology and a scanner — although this capability is often reserved for business accounts.

Choosing paperless transactions

You’ll find lots of good reasons to go paperless, including reducing clutter and helping the environment. And online banking almost completely eliminates the need for using paper in any day-to-day transactions. From reading your monthly statement to transferring money and paying bills, paper is pretty much obsolete in the online banking world.

Setting up automatic bill payments

Paying bills used to require waiting for your monthly statements to arrive in the mail. Then you had to write a check for each one, record the amount in your checkbook, tear off the payment slip, put each bill payment in an envelope, and mail them all in before the due date.

Phew! It took longer to type that last sentence than it does to pay bills online these days. And you can even do it automatically for nearly every bill — just set it and forget it through the bank’s bill pay service or the account’s AutoPay function. Some providers, like your mobile phone carrier, might even give you a discount for using automatic payments. 

However, depending on the method of delivery, it can still take a few days for automatic payments to arrive at their destination. So make sure you understand the parameters of your setup and adjust payment dates accordingly.

Tracking account activity

With all these transactions happening automatically, it’s important to make sure the correct amounts are going to the right places. With online banking, you can check your balances, see each transaction amount, and look for any forgotten subscriptions that you might not want anymore.

Accessing bank records

Current transactions are one thing, but what if you want to dive deeper, find a transaction from a year ago, or access tax-related documents? Many online banks offer access to past statements going back several years.

Sometimes it’s a longer process to request older records than the simple immediate viewing for current transactions. But even if you need documentation older than seven years, it’s usually possible to order the digital paperwork — as long as you’re willing to pay a retrieval fee if needed.

Benefits of Online Banking

Most things come with pros and cons. But online banking has numerous benefits over traditional in-person banking, and the only real drawback is a lack of face-to-face interaction. Of course, depending on your preferences, this might be another item on the “pro” list rather than a “con.” But the others tend to be more cut-and-dry.

Convenient account access

Probably the best and most obvious benefit to online banking is the convenience. You can manage your finances from the palm of your hand, anywhere you are, any time of day — and that clearly beats having to go to a physical location during a certain time frame.

Banks traditionally keep relatively short hours. And even if those hours work for you, and there aren’t any lines, and you live close by, banking offline will always take more time and effort than just logging in to a website or opening an app.

Use of mobile banking apps

Online banking doesn’t have to be through a mobile app, but apps can definitely make the process faster, easier, and more convenient. When you use a mobile banking app, you can do your banking on the go. And without making that stop in the branch or at the drive-through window.

Companion tools for your smartphone include digital wallets, or mobile wallets, which let you store your credit and debit cards for quick and easy contactless payments.

Faster banking

Besides saving time that you would have spent going to the bank, many online banking processes themselves are faster. When you can transfer funds in seconds instead of days, everything else seems slow.

Increased financial options

Online banking lets you choose who to deal with, depending on which type of financial institution you prefer and who’s offering the best rates or benefits on the services you need. You even have options when it comes to individual transactions. Would you rather make an instant transfer for a fee, or a free transfer that takes a few days? Your decision can be based on which is more important that day — your money or your time.

Improved visibility and accuracy

If you’re worried about human error, online banking can be more accurate than in-person banking. That’s not to say that the tellers working in your neighborhood bank aren’t skilled at their jobs, but people can make mistakes. Technology most often makes mistakes if a person programmed or executed something incorrectly first.

Is Online Banking Safe?

Since we’re talking about your money and your identity, online bank accounts are attractive to scammers. And yet, this industry is also hyperfocused on state-of-the-art safety and security.

Online banking uses the latest technology in encryption, anti-virus protection, firewalls, fraud monitoring, and other security features to keep your money safe. You can generally trust that your online banking activities are protected from hackers and data breaches.

Of course, it’s important to create strong passwords that people can’t easily guess, and make each password unique instead of using the same one across different accounts. Also consider using multi-factor authentication for additional security.

And be vigilant against hackers and other criminals who try to steal your credentials. This often comes in the form of imposter scams, which involve a phishing attempt disguised as a legitimate notification, alert or other communication from your bank. With AI making it harder and harder to detect the standard red flags, always use caution in dealing with any finance-related messages. If in doubt, call the bank directly instead of interacting with what might be a scam.

How To Open an Account Online

Opening a bank account online is relatively simple, and really just involves three steps.

1. Do some research to see what’s available. Some banks offer bonuses to open an account, but you need to make sure the terms and criteria for earning the bonus are doable for you. And some offer ATM access, if that’s important to you.

2. Choose a bank from your short list. Evaluate the parameters that make the most sense for your situation, go to the bank’s website, and click the button that says “open an account” or something similar. 

3. Enter your information, which typically includes your name, address, Social Security number, and identification — like a driver’s license or passport. You’ll likely have to upload a copy of your ID, and maybe proof of address, like a utility bill.

Bottom Line

You can use physical brick-and-mortar financial institutions for your banking needs if you want to. Chances are these well-established businesses won’t be going away any time soon. But you can also try a new virtual bank if you prefer, or if the offerings better fit your needs and financial goals.

Either way, online banking services are undoubtedly available through your chosen financial institutions. These can range from mobile apps to online logins and automatic bill pay. And they include viewing and monitoring your account activity anytime, anywhere. Once you get used to internet banking, you’ll likely find that online access and digital transactions make life easier and, sometimes, much faster.