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How different is online banking?

January 03, 2013

| MoneyRates.com Senior Financial Analyst, CFA

Q: Every time I compare rates on savings accounts, it seems the best ones are all online banks. I've never dealt with an online bank before. How different is it from dealing with a regular bank?

A: The difference really comes down to how you use your bank. Here are six key issues that might help you decide whether online banking is for you:

  1. Making deposits. Online banks vary in their procedures for handling transactions; the most versatile ones accept funds via the mail, transfers from other accounts or mobile phone apps. Chances are that however you deposit money now will work with an online bank -- unless you are fond of walking into the bank and handing your deposit to a teller.
  2. Accessing your money. Savings accounts aren't designed to handle frequent withdrawals or transfers anyway, so access should not be a huge issue. Still, if you want to periodically access cash from your account (as opposed to receiving checks or transfers to other accounts), you'll want to check out what provisions the online bank has made for ATM access.
  3. Personal advice and service. If you regularly get in-person help from a teller or other representative at your bank, this might be the hardest thing for an online bank to replace. Increasingly, though, people interact with their accounts through ATMs and electronic means, which has reduced the role of in-person service.
  4. Separating your accounts. If you currently have savings and checking accounts at the same bank, the combined amount of your deposits might be helping you qualify for free checking. You'll want to make sure that removing the savings account wouldn't disqualify you from that privilege -- unless you want to move both accounts online.
  5. Viewing statements. One of the cost advantages that allows online banks to offer higher rates is that they do as much of their business as possible online. Therefore, if you like getting paper statements by mail, you might not enjoy online banking. However, more and more traditional banks are starting to charge for paper statements, so this is becoming less of an advantage for traditional banks.
  6. Online security. While there are legitimate concerns about online security, keep in mind that even traditional banks have exposed their customers to information theft. Follow common sense rules like not logging onto your account via a public network and always logging off of the account when you are finished.

When it comes to interest rates on savings accounts, your impression is correct: The rate surveys MoneyRates.com conducts regularly show an advantage for online banks. The real question, then, is whether you can adapt your banking habits enough to take advantage of those higher rates.

Got a financial question about saving, investing or banking? MoneyRates.com invites you to submit your questions to its "Ask the Expert" feature. Just go to the MoneyRates.com home page and look for the "Ask the Expert" box on the lower left.

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