Most consumers are actually quite happy with their online banking experience. They enjoy higher interest rates on savings, and they often have access to advances in banking technology (such as remote deposit) more quickly than they would at a traditional bank. Plus, the issues mentioned in this article are becoming less and less prevalent as banks have improved and become more competitive over the years.
For a different point of view, be sure to read about the Best Reasons for Using Online Banks.
1. Customer Service With Online Bank Accounts
One reason to hesitate about online banking is that you may have trouble with customer service. With a brick-and-mortar bank, you’ll likely have some familiarity with the staff, and at a small credit union, the staff might even know you well. If you’re the type of person who enjoys personal interaction, it’s easier to find that at a brick-and-mortar institution. On the other hand, you might want to just get things done and move on about your business, in which case online banks are probably more efficient.
Sometimes problems are easier to solve in person. If there is a mistake somewhere, a face-to-face discussion may be the most effective way to make progress when things are confusing. You won’t have to wait on hold and deal with an “escalation” process when everybody can sit down together and figure things out.
Why does the staff matter? It’s easier to get good service if you know the them, they know you, and they know what you typically do with your accounts. You can pick and choose who you deal with if you’re familiar with the employees (hopefully there’s somebody there who you like working with). However, online banks often require that you play the “1-800 Lottery”. You might get somebody helpful and knowledgeable, or you might not. On the bright side, you can always hang up and call back – hoping for a better qualified representative, but that’s frustrating.
In recent years, customer service has improved at most online banks. But in the early days, customers were sometimes "fired" or had their accounts closed for being too high-maintenance (if they demanded too much from customer service).
2. Online Bank Accounts and Speed
The internet makes some things faster, and some things slower. Opening up an account may feel like a “hurry up and wait” situation. You’ll complete an application online, and you may then have to send in a paper document with your signature. This can feel odd, compared to the relative speed of most other transactions online. At brick-and-mortar banks, you can begin using an account almost immediately.
Likewise, deposits to your online bank account can be really slow. If you get a big check and want to start earning interest, you can expect to wait if you're going to mail the check in. Now, the higher APY you earn may still make it worth your while, but it’s just no fun to wait.
What can you do about this? Use an online bank that allows you to deposit checks remotely (with a computer or mobile device). Those deposits will start earning interest faster, and you don't even need to pay for a stamp.
What about getting cleared funds quickly? If you need to pay somebody with a cashier’s check, an online bank account won't help. However, you can generally do a wire transfer out of an online bank account (if your payee will accept a wire transfer).
3. You Can’t Spend It From Your Online Bank Account
You can’t take it with you when you go, so why not use some of that money? Online bank accounts have traditionally made it hard to spend your money -- you really had to plan on keeping your money in the account -- but things have improved since then.
To keep your cash accessible, use accounts that offer online bill pay or debit cards that you can use at an ATM or retailer.
- Debit Cards: Should You Choose Debit or Credit?
- CapitalOne High Yield Money Market Account (pays interest)
- ING Direct Electric Orange Checking (pays interest)
- GMAC Bank Money Market Savings (pays interest)
Other Reasons to Avoid Online Bank Accounts
Sometimes online banking websites go down. When this happens, there's no backup branch that you can go to -- and the phone lines will be clogged. To protect yourself, always keep a local bank or credit union account open with some emergency cash so you won't be penniless while they fix the problem.
Should You Avoid Them?
You should not ignore online bank accounts. Unless you simply cannot tolerate any of the situations above, you'd probably benefit from opening an account. There are several reasons to consider online banks: they offer an easy way to bank for free, they're your best bet for finding high interest rates, and they usually make life easier. You may never run into any of the problems mentioned above, and your overall experience will probably be great. However, you now have an idea of what can go wrong when using these services.
Return to Online Banking 101.