Online-Only Banking: The Pros and Cons


Considering online banking?

If you’ve already been shopping online regularly, changing over to solely online banking won’t seem like much of a stretch. Plus, data encryption technology and other measures ensure security over the Internet.

Here are some pros and cons of making the switch to banking online:

Pro: Strong First-Rate Yields
A major factor driving the popularity of online banking is the great returns from high-yield checking accounts compared with those at brick and mortar banks.  Since all of an online bank’s business is done on the Internet, over the phone and by mail, these banks have low overhead costs and the savings is passed on to the account holder.

Jacksonville, Fla.-based Everbank’s high-interest checking account, for example, offers an introductory three-month bonus yield of 2.51% and a first-year APY of 1.84% for balances between $50,000 and $100,000, compared with a recent national average of 0.16%. And Everbank promises to offer yields among the top 5% of competitive accounts at leading banks and thrifts.

Redneck Bank, which is owned by the Bank of the Wichitas, offers a whopping annual percentage yield of 5.25%, as long as you play by their rules

Another popular online checking accounts include Schwab’s High Yield Investor Checking Account (Stock Quote: SCHW) which offers a 1% APY. ING Direct’s Electric Orange Checking Account (Stock Quote: ING), which yields as much as 1.65% (if your balance is more than $100,000) and at least  0.25% (if your balance is $49,999.99 or less).

Con: Don’t Forget the Fees
Racking up ATM transaction fees can become a problem with some online banks.

ING Direct Electric Orange account holders can only use the Allpoint national network of 32,000 ATMs free. At other ATMs, you’ll have to pay the ATM operator’s fee, but ING won’t charge you for using an ATM outside of their network.  Your best bet here is to opt for cash back every time you go to the grocery store.

Schwab’s account offers the best deal for those who make frequent ATM visits. You’ll get a rebate for all ATM charges during the same checking account statement in which you incur them.

Pro: Tech Perks
One of the best features of online banks, especially for the forgetful or undisciplined, is an automatic savings plan feature that allows you to transfer fixed amounts of money to or from other accounts on a weekly, monthly or quarterly basis.

And for those who like to micromanage their finances, you can upload you transaction information from ING and Schwab to your home computer for use with personal finance software including Intuit’s Quicken (Stock Quote: INTU) or Microsoft Money (Stock Quote: MSFT). 

To find out the best interest-bearing checking account rates at banks in your area, go to and enter your state or ZIP code.

Occasional Con: Access to Cash
Deposits at online banks such as Everbank, Redneck, Schwab and ING are FDIC-insured the same way deposits at banks with branches are, so there’s no need to fear.  But they have to get there first.

And this is where technology actually limits an online account’s usefulness.

If you’re depositing a paper check, online banks rely mostly on snail mail, or you’ll have to deposit it into a linked brick and mortar bank account and wait a few days for a transfer to clear.  If you visited a teller at a bank branch instead, your cash would likely be available immediately.  Even ATM deposits at branch banks allow a certain amount of cash to be available to customers right away.

With ING, you’ll have to mail your checks at your expense, while Everbank provides pre-paid envelopes and has 13,000 deposit-taking ATMs nationwide.  Wire transfers are another option for making deposits, but transfers to and from Schwab, ING and Everbank can take from two to five days to clear.

Draw: Human Contact
If all the details make you dizzy, online banks tend to make customer service representatives readily available without much of a push-button runaround through an automated telephone system.

But not all banks have reps available 24/7.  Although Everbank customer service is available 24 hours a day by phone, ING and Schwab reps are only around during business hours.



—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at

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