What Are the Pros and Cons of Online Checking Accounts?

Online checking accounts offer a convenient alternative to keeping your money in a brick-and-mortar bank. You maintain an online checking account with a computer or smartphone, and you can open it, check your balance, pay bills and transfer money between accounts without setting foot in a physical location. You can even deposit a check or cash without going to a branch. Smartphone apps enable you to deposit a check by taking a picture of both sides of it. In addition,  many online banks contract with ATM companies so that customers can use their machines to make cash deposits.

Online banks have less overhead than their brick-and-mortar counterparts, and most pass those savings to their clients in the form of higher yields and lower fees. As of May 2018, the U.S. average annual percentage yield (APY) for checking accounts is 0.06%, according to a recent Bankrate survey. However, several online banks are offering checking accounts with APYs of 1% and higher, according to WalletHub. Another big draw for online checking is its low fees, also a result of overhead savings being passed on to the consumer. Because online banks typically do not maintain dedicated ATMs, many reimburse their customers for the charges they incur making out-of-network withdrawals. (For more, see The Ins and Outs of Bank Fees.)

High-tech features, such as budgeting assistance and compatibility with personal finance software such as Quicken and Microsoft Money, are another big draw to online checking accounts. Many enable you to set up automatic weekly or monthly transfers of a set amount of money to or from other accounts. This service can help you stick to a monthly budget or build your savings. Another popular feature is the automatic downloading of account information to personal finance software, which also helps with budgeting and can make filing your taxes much less arduous

Before signing up to make the switch, understand that online checking accounts come with a few drawbacks, including not having access to face-to-face customer service. Sitting down with a personal banker at your local branch can make it easier to deal with any issues that arise with your account. With online banking, however, the best you can hope for is a call center representative at a toll-free customer service number. Some online banks offer 24-hour customer service by phone, while others limit their customer service to normal business hours.

Online security is another concern. Few things are more sacred than your banking information, and few things can cause you more trouble if it falls into the hands of an unscrupulous person. Though most online banks provide encryption software and high-tech site security, cyber criminals have used malware to infect online banking customers’ browsers and steal login and password information. Keeping your computer and mobile devices free of malware and viruses is paramount if you maintain your checking account online. Banking: Online and Mobile Banking Precautions and Safeguards reviews these issues in more detail.

Eschewing your brick-and-mortar bank for an online checking account has pros and cons. The pros include higher yields, lower fees and high-tech features that help with account maintenance and budgeting. The cons include more difficult access to customer service, as well as online security concerns. Ultimately, you have to decide what’s right for you. For more, see The Pros and Cons of Internet Banks.