Ask the expert: When are online banks better?
June 22, 2011
Q: I tend to think of online vs. traditional banking as a matter of preference, but is there more to it than that? Are there some situations where an online bank is just better than a traditional bank?
A: Choosing between online banking and traditional banking is often a matter of preference, but there are some situations that may be a better fit for one or the other.
For example, in a recent survey of online savings accounts, MoneyRates.com has found that online banks tend to offer higher interest rates on savings accounts than traditional banks. This is no surprise, because it represents the fact that an online institution can operate with less overhead than a bank which must maintain an extensive branch network. Also, savings accounts are a great fit for online banking, because the nature of them is that you shouldn't need much in the way of ongoing contact with bank representatives.
A checking account, on the other hand, is designed for more frequent interactions. This doesn't necessarily rule out an online bank, but you'd want to make sure there is a wide enough ATM network in your area to meet your needs.
One concern that often comes up in connection with online banking is security. You should inquire about what a bank has done to secure its web access, and what its safety record has been. You should also recognize your role in the security of your banking data. Make sure the firewall and other security measures on your computer are adequate, avoid accessing bank information on public networks, and use creative passwords that would be hard for anyone else to guess.
Finally, keep in mind that security breaches are not unique to online banks. Hackers have penetrated the computer records of traditional banks as well, so in this day and age, you should have a conversation with your bank about security, whether or not you bank online.
Got a financial question about saving, investing, or banking? MoneyRates.com invites you to submit your questions to the "Ask the Expert" feature. Just go to the MoneyRates.com home page and look for the "Ask the Expert" box on the lower left.