INTRODUCTION
Key Takeaways
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Definition and Examples of Online Banking
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How Online Banking Works
Opening Accounts
Paying Bills
Transferring Funds
Applying for Loans
Depositing Checks
Viewing Current and Past Transactions
Staying Informed
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Online Banking vs. Traditional Banking
Better Interest Rates
Lower Fees
In-Person Transactions
Note
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Technology Issues
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Safety Issues
Note
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Introduction
Online banking gives you the ability to manage your bank account over the internet
using a computer or mobile device. There’s no need to visit a bank branch, and you
can do all of your banking tasks when it’s most convenient for you, including
outside of normal banking hours.
Key Takeaways

Online banking lets you manage your bank account using a computer, tablet, or mobile
device.
 It eliminates visits to a bank branch and lets you initiate transactions when it's convenient
for you.
 You can choose to bank online with a traditional bank or credit union you have an
existing relationship with, or you can open an account with an online-only institution.
 Online banks generally pay higher interest rates on deposits and charge lower interest
rates on loans but may not offer the full range of services that local brick-and-mortar
institutions do.
Definition and Examples of Online Banking
You can bank online through an online-only bank or online-only credit union or
through the suite of online services that most brick-and-mortar banks and local
credit unions now offer. You can typically pay bills, transfer funds, apply for a
loan, deposit checks, and verify transactions and account balances.
Banks that offer online banking include Bank of America and Wells Fargo.
How Online Banking Works
Online banking is designed to be convenient, saving you time and letting you do your banking on
your own schedule rather than only during the hours your local bank branch is open. Almost
anything you can do at a traditional bank or credit union location you can accomplish online,
starting with opening an account.
The one advantage that traditional banks and credit unions have had over their online
counterparts is the ability to withdraw funds using an ATM. Increasingly, online banks and credit
unions are providing access to a network of ATMs that won't charge you a fee. Some financial
institutions will reimburse your ATM fees up to a certain amount each month.
Opening Accounts
You can open checking, savings, and other types of accounts online, often without the hassle of
printing or physically signing anything. With electronic signature capability, the entire process
might now take less than 10 minutes.
If you're a customer of a financial institution that offers online banking, you can register for
online access through its website. At a minimum, you'll usually need the following items to get
started online:
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An internet connection
A device with a web browser: a computer, tablet, or smartphone
Your bank account number
Personal information to verify your identity, such as your birth date and Social Security
number.
You will need the same things, excluding the bank account number, to open an account with an
online-only bank or credit union with which you do not have an existing relationship. You may
be asked for additional ID verification, such as a driver's license.
Registration involves setting up a log-in—often your email address—and password. Once you
complete registration, you can log into your account and start banking online with only your
internet-enabled device.
Paying Bills
Instead of writing checks to pay bills, your bank can print and mail a check for you month after
month. But for greater convenience, it’s also possible to send money to a payee electronically,
even if the amount you owe changes every month.
Transferring Funds
If you need to move money from your checking account to your savings account or into a
certificate of deposit (CD), you can carry out these intrabank transfers online. You can even link
your accounts at different banks or send money to friends and family almost instantly through
person-to-person services accessible through your bank.
Applying for Loans
Getting a loan is traditionally a paperwork-intensive process, but it doesn’t have to be. Filling in
your application online speeds the credit-check process, enabling your bank or credit union to
respond with an answer more quickly. Some financial service providers with online loan
applications make funds available the same day you get approved for a loan. Other lenders that
operate entirely online can make near-instant lending decisions.
Depositing Checks
When someone pays you with a check, it's easy to deposit the check from home if you have a
smartphone. Using a mobile check deposit, you snap a photo of the check through the mobile app
of your bank and submit it for payment. There’s no need to mail the check.
Viewing Current and Past Transactions
Most credit unions and banks make it easy to check your available balance, verify your latest
transactions went through, and review previous monthly statements online. You should be able
to search transactions by time frame and type, such as a bank card payment.
Staying Informed
Another big benefit of online banking is the ability to set up alerts. You can receive a text or
email when your bank notices potentially fraudulent activity or your balance goes below a
certain amount. You can be notified when deposited money is available and when a check has
cleared.
These alerts are great for informational purposes, but more important, they can help you quickly
stop criminal acts. For instance, if you are notified of a change in your password, and you did not
make that change, you can immediately contact your bank and ask it to prevent the perpetrator
from draining your account.
Online Banking vs. Traditional Banking
There are important benefits to be gained by using a bank through which you
primarily or exclusively manage your account online, but traditional banks have
advantages, too.
Better Interest Rates
Online-only banks tend to offer a higher annualized interest rate, often referred to as the "annual
percentage yield" (APY), on your deposits. That's because they don't have the overhead of brickand-mortar banks and can pass some of the savings along to you. However, the online division of
some traditional banks may also offer competitive rates. Online banks also tend to offer a lower
interest rate on loans, which is called the "annual percentage rate" (APR).
You generally want higher interest rates on savings accounts so you can make your money work
harder for you. On the flip side, lower interest rates are desirable when you borrow, 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.
Lower Fees
Online-only banks typically charge lower fees than traditional brick-and-mortar institutions for
the same reasons they pay more in interest. In fact, they are less likely to charge fees for certain
services or for failing to maintain a minimum average balance.
In-Person Transactions
Despite offering the ability to deposit checks via mobile deposit or withdraw money through
affiliated ATMs, an online bank 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.
Traditional banks can also provide notary services, safe deposit boxes, and cashier's checks.
Online-only banks typically can't.
Note
Consider keeping accounts at both an online-only bank and a traditional bank to capitalize on
higher-interest savings account rates and low fees at the former while retaining the option to use
in-person services at the latter.
Technology Issues
If you’re not comfortable with technology, banking online may come with a steep learning curve.
Glitches can also happen, and if your computer—or the bank’s system—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.
Safety Issues
In many respects, online banking is more secure than traditional banking. Having your pay
directly deposited into your bank account eliminates the risk of someone stealing your check
from the mail. Plus, no one can copy your account information from checks that you send out;
bank computers send that information back and forth securely, without storing it.
Note
If fraud or errors occur during an electronic funds transfer, federal law often protects you, as long
as you act quickly.1
Online scams such as phishing schemes that use an email or text to get you to divulge important
information are cause for concern. As long as you send information only to people you trust, and
through authentic websites, you can avoid many of them. Be careful about what you click on,
and contact your financial institution if you have any concerns.