Online banking is a system that allows you to manage your bank accounts using your computer or mobile device and the internet—which is why it’s also referred to as internet or web banking. Most traditional banks, or banks with brick-and-mortar branches, offer an online banking option to their clients.
Generally, online banking covers typical banking activities that are done through an internet-enabled device. You can:
- View account balances
- Pay bills
- Make deposits
- Manage accounts
- Transfer funds between accounts
- Set up account alerts
- Order checks and stop payments
- Request debit card replacements
- Check account history via online statements
All these transactions can be conducted from the comfort of your home or office or while you’re on the go.
How Does Online Banking Work?
For web banking, you need to have a computer or device connected to the internet, and you will have to register with your financial institution’s online banking service. The transactions you can perform online will depend on your provider—many allow fund transfers and bill payments, while some go a step further by letting customers open new accounts and apply for credit cards and loans.
Is Online Banking Safe?
When banking via the internet, you’re using secure websites and services to conduct your transactions. However, there are always risks involved, and it’s possible for your information to be compromised—whether you’re banking with a traditional or online bank. As such, protecting your online password and monitoring your account regularly will keep your account safe wherever you choose to bank.
Most checking and savings accounts under online-only banks are insured by the Federal Deposit Insurance Corp. (FDIC) for up to $250,000, similar to brick-and-mortar banks. You can always verify this before opening an account.
However, some online-only banks, such as Live Oak Bank, provide higher FDIC insurance protection through IntraFi Network Deposits. Learn more by reading our guide on FDIC Insurance for Business Accounts.
According to a survey released by Morning Consult in October 2023 (performed on behalf of American Bankers Association), 48% of customers favor using mobile apps for managing bank accounts, 23% prefer using their laptops or PC for online banking, and only 9% visit branches for banking services.
Although this shows that online and mobile banking are popular for their convenience, users still want to be assured of their safety. Banks do their best to keep your account secure, but it’s up to you to take precautionary measures to ensure you’re banking safely.
Here are a few things to consider when banking online, whether with a traditional bank with a brick-and-mortar branch or an online-only bank:
- Choose a strong password and set up two-factor authentication:
- Avoid including personal information, such as your birthday, for your password and set up a unique username that doesn’t contain your name
- Combine special characters, upper and lower case letters, and numbers
- Change your password regularly
- Enable two-factor authentication (2FA) for an added layer of security
- Check that your connection is secure:
- Refrain from accessing online or mobile banking when connected with public Wi-Fi or using public computers
- Choose to perform online banking using 4G even if public Wi-Fi is available to limit risks
- Use a virtual private network(VPN) whenever you’re connected to public Wi-Fi for added security for your personal information
- Monitor your account routinely:
- Review your bank statements regularly to find discrepancies
- Set up account alerts to be notified of any unusual activity
- Report suspicious activity immediately to prevent further fraud
- Register for banking alerts
- Don’t share personal information:
- Keep your online login information private
- Restrict access to the email address associated with your bank account to steer clear of password reset requests via email
- Have a backup account:
- Keep a second bank account at a traditional bank in case your online bank account is compromised
- Secure your money by moving your funds to your second bank account if a data breach is detected
Types of Online Banking
Online banking covers mobile banking and digital banking. It is also synonymous with online-only banks and financial technology (fintech) providers since both typically do not provide a physical branch network and cannot provide in-person banking.
Mobile Banking
Mobile banking is performing financial transactions through a mobile app—you can easily send money, pay bills, deposit checks, and review your account balance. It is typically available 24 hours daily, allowing you to skip branch visits.
Traditional banks often offer mobile banking to provide convenience to their customers, who have to download the app provided by their financial institution.
Digital Banking
Even if it seems similar to online banking, digital banking is far more extensive. It’s broad and includes online and mobile banking services, which entails using a web browser and mobile app. It has a high level of process automation and digitizes both the front and back ends of banking. It’s offered by traditional banks, credit unions, and online-only banks.
With it, users can do much more than standard banking activities. You can use customized money management tools, open investment accounts, and apply for loans. As technology grows more sophisticated, users can expect digital banking to flourish even more. For instance, artificial intelligence (AI) is becoming increasingly popular in digital banking, and this can be observed through chatbots providing automated customer service.
Online-only Bank
An online-only bank is a financial institution that offers various banking products and services, including checking and savings accounts. These banks usually don’t have physical branches and operate through digital platforms.
Although the lack of physical locations means cash processing is inconvenient, most people won’t find this a big obstacle with electronic deposits and transfers. Opening a business account through an online-only bank is convenient, especially for businesses that don’t need to deposit cash daily.
Fintech
Fintech is a term that encompasses optimizing technology to make financial services available to customers. Fintech companies are not banks—but they offer retail banking services and provide FDIC insurance coverage through bank partnerships. They make payments, lending, investment, and banking efficient for consumers and businesses since they can maximize automation and digital technology to streamline their operations.
With fintechs bringing innovation to financial services, they can disrupt the banking industry easily, given their focus on consumers. Fintechs compete with traditional banks through their tech-advanced products and services offered virtually and without personal assistance. As a result, the operational cost is much lower than traditional banks. Service fees are also minimal to none.
Pros & Cons of Banking With Online Banks & Fintechs
Online banks and fintechs usually provide some or all of the banking products and services that most traditional banks offer, often at a lower cost. And while online banking offers many great benefits for consumers, it also comes with some drawbacks.
| PROS | CONS |
|---|---|
| Are convenient and make it easy to monitor your account and make transactions | Lack in-person branches; all transactions are done through the banks’ or fintechs’ websites or mobile apps |
| Typically have better annual percentage yields (APYs) | Have fewer products that lack the variety of products traditional banks offer |
| Pass on their savings from fewer overhead costs in the form of lower account costs | Sometimes lack cash deposit services, so they’re not a good option for businesses with regular cash transactions |
Fintechs vs Online-only Banks vs Traditional Banks With Online Banking
Fintechs, online-only banks, and traditional banks offering online banking are often interchanged, but these are three different types of financial providers. The table below helps to distinguish one from the other.
Online-only Bank | Fintech | Traditional Bank with Online Banking | |
|---|---|---|---|
Financial Institution | |||
FDIC-insured | ✓ | Backed by banks that are FDIC-insured | ✓ |
Accessibility | Fully online | Fully online | Online with physical branches |
Products and Services | Savings, CDs, and lending | Checking and lending | Checking, savings, CDs, lending, credit cards, merchant services, and collection services |
For More Information | Read our Bluevine business checking review | Read our Chase business checking review |
When To Consider an Online-only Bank
Online-only banks are great for those who don’t make cash deposits or need in-person services regularly. Since most already bank online with their major banks, the transition from traditional to online-only banking shouldn’t feel much different from utilizing the online banking features with a major bank. With online-only banks and fintechs, you can still make online payments, fund transfers, and deposits.
Business owners also find online-only banks and fintechs more enticing because most of them offer low-cost accounts and higher interest rates on savings accounts. Further, even if the online-only bank you choose has no physical branches, it’ll likely have a large surcharge-free ATM network available for all account holders.
Frequently Asked Questions (FAQs)
Internet banking is a convenient method of performing banking transactions using your desktop computer, laptop, or mobile device and the internet. It is also referred to as online banking.
An online bank is a financial institution with similar products and services to traditional banks and permits users to conduct banking activities through a website. It offers convenience but may provide limited customer support.
Yes. Online banks are safe if they are FDIC-insured and have strong data security technology.
Bottom Line
Online banking is convenient since you can transact anytime and anywhere you choose, though it has limits when it comes to large cash withdrawals and is also exposed to risks. However, banks continue to improve their security features, and if you take proper security measures, you can conduct your online banking activities safely.
