In the last decade, online savings accounts have become commonplace. Not only do they traditionally yield better interest rates on your savings (for instance, the difference between 0.5 and 3%) — they cost both banks and consumers less money to operate.
Although some people have switched from traditional savings accounts to higher-yield online savings accounts for longer-term investments, the concept of online checking accounts hasn’t become as popular. This may change when more people catch on to their growing benefits.
Like online savings accounts, online checking accounts charge fewer service fees, don’t require minimum balances, and are extremely convenient for those who are technologically inclined. Until recently, however, there weren’t any other major incentives for switching to online banking — and, admittedly, most people want immediate access to the funds in their checking, which is a feature most online formats struggle to provide.
As of recently, that is no longer the case.
What’s the big, ground-breaking development in online checking accounts? Many of them are now interest-bearing, and significantly so.
What Are Interest-Bearing Checking Accounts?
In a recent financial report, it was revealed that interest-bearing checking accounts can offer as much as five times the yield of even the best long-term savings accounts. While there are balance limits for these remarkable interest rates, funds are more readily available than if placed in a CD.
Creating a greater incentive for consumers to open online checking accounts is a strategy of institutions that wish to transition to mostly online operations and eliminate the expenses of operating brick-and-mortar banks. Also, streamlining customers’ online accounts by encouraging them to maintain just one saves banks even more money and payroll. After all, banks are trying to make a profit just like everyone else.
Since twice as many online checking accounts offer interest than their traditional counterparts, those who are eager to make the most out of their money may be inclined to switch over.
But, if you’re considering this possibility, it’s also wise to consider the disadvantages. As stated earlier, online savings or checking accounts pose their own set of accessibility challenges.
The Drawbacks of Online Checking Accounts
Online accounts are naturally designed for online transactions, and although online banks partner with certain ATM companies, many ATMs still charge fees for withdrawing from an online account. And of the ones that reimburse you for ATM charges, you have to make sure you meet all the requirements, such as having at least a few debit card transactions and/or direct deposit into the account.
Depositing money can also be difficult, since customers often have to deposit into a regular checking account and then transfer funds to their online account, a process which isn’t always immediate. Some banks started allowing users to deposit a check by using the camera on their smartphone, but there could still be check amount limits that prevents immediate access to funds.
The third major drawback is security. The security measures employed by online banks are extremely high (as it should be), but this also means it can be time-consuming to get through security protocols to access your account.
You can be sure that online banks are working on these challenges, though, since increasing their online presence and customer base is to everyone’s advantage.
Is an Online Checking Account Right for You?
You may be perfectly content with your traditional checking account, or perhaps only an online savings account, and that’s fine. But if you’re looking to streamline your finances, earn interest on the money you use the most, and take advantage of the other money-saving perks, now might be the right time to open an online checking account.
Do you use an online checking account? Why or why not?
{ read the comments below or add one }
I’ve been doing on-line banking since 1998 and never hand any issues with either of the on-line banks I’ve used (everbank & ally). I’m currently using Ally Bank for the past five years because they rebate all my ATM fees (and no this is not a paid advertisement – I just think good businesses should be rewarded by word-of-mouth).
Try it (or them!) – I think you’ll like the convenience.
Very informative, thank you!
Online savings accounts are great however if you cash limits in the account reduce over time then banks will charge a fees anywhere.
I recently made the switch to an online-only bank and I am so glad that I did. First, banks that have limited their customers to an online-only experience (meaning there is no brick-and-mortar retail presence) seem to spend more on creating strong and intuitive user-interfaces. My experience of switching has proven this point true.
Second, online-only banks is one of the most disruptive changes in the last century to the traditional banking business model. And customers are benefiting in the form of interest-bearing checking accounts, higher yielding savings accounts, and an overall fee-free experience.
Third, online-only banks are faster and more efficient. No need to stand in a line at the bank or wait for a banker to process an application for a new account.
I could keep going, but I will stop there. In contrast to one of the other commentors above, I actually cannot understand why the need for a traditional bank account is needed. Online serves all of our needs (except for depositing cash, but how often do you have so much cash you couldn’t just use if for your daily and weekly expenses and have used it all up in less than a month) more efficiently, effectively, and profitably. Time to let go of the old and accept the new, better way.
The main reason to have an online checking account is because it is free of fees. Most banks charge fees right left and center.
I use an online bank as my main checking account, get direct deposit, scan and upload checks, and pay bills.
I maintain a free, no frills account at a local bank so that I can have a place to deposit cash, and access a bank in person as needs arise.
The only drawback I’ve found is not being able to deposit cash. Other than that, I have been happy with my online account.
Unless you live in some place that has no banks near by, I can’t think of any good reason to replace traditional check account with online checking account. The interest-bearing part is good, but wouldn’t it be better if one opened a traditional checking account and opened an online saving account to earn interest? That’s what I would do.
Many of the downsides listed are really out of date. Most good online banks now allow you to use a scanner or phone to deposit checks. Also, when looking for an online bank, make sure they refund any ATM charges!