This article is part of a larger series on Business Banking.
Online banking is as common as banks themselves, but what is an online bank? Online banks offer banking products and services that help you maintain and manage your finances, such as checking and savings accounts, but without the physical locations of a traditional bank. Online banks sometimes have fewer account options, and cash deposits often aren’t available. However, these banks usually provide better interest rates, fewer fees, and easier online transactions.
What Is an Online Bank?
An online bank is a financial institution that offers a variety of banking products and services, including the most widely used checking and savings accounts. These banks usually don’t have physical branches, so they operate through digital and online platforms. However, the lack of physical locations means cash processing is inconvenient, but with electronic deposits and transfers, most people won’t find this a big obstacle. Even opening a business account online is a terrific option for noncash business owners.
Are Online Banks Safe?
Online banks use secure websites and services to conduct all banking transactions, similar to how traditional banks rely heavily on digital and online banking for their customers. There’s no guarantee that your information won’t ever be compromised, whether you’re banking with a traditional or digital bank. However, protecting your online password and monitoring your account constantly will provide safety wherever you choose to bank.
Online bank’s checking and savings accounts are also insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000, just like brick-and-mortar banks. Even though most online banks are FDIC-insured, it’s a good thing to verify before opening an account.
When You Should Consider an Online Bank
Online banks are ideal for those who don’t make cash deposits or need in-person services regularly. Since most people already bank online with their major banks, the transition from traditional to online banking shouldn’t feel much different than utilizing the online banking features with a major bank. With digital banking, you can still make online payments, fund transfers, and deposits through mobile banking.
Business owners also find digital banks more enticing because most online banks offer low-cost accounts and higher interest rates on savings accounts. Furthermore, even if the online bank you choose has no branch locations available, it’ll likely have a large, surcharge-free ATM network available for all account holders.
How to Bank Online Safely
There are a few things to consider when banking online, whether with a brick-and-mortar branch or a purely digital bank. The banks are doing the best they can to keep your account secure, but it’s up to you to take more precautionary measures to ensure you’re banking safely.
Here are a few ways you can safely bank online:
- Choose a strong password: A strong password should be at least eight characters long and have a mix of lowercase and capital letters, numbers, and special characters. You should also avoid using personal information like your name or birthday as a username or password.
- Set up two-factor authentication: Two-factor authentication provides an extra layer of security that requires you to verify a second piece of information after signing in successfully. Usually, this includes a phone call to your secured number, a secured text with a code, or a secured link in an email.
- Use a secured connection: Be sure to use a secured internet connection whenever you access a banking platform. Use a virtual private network (VPN) to encrypt your private information whenever you’re connected to public Wi-Fi so that others can’t access your personal information.
- Monitor your account: View your online bank accounts daily and set up account alerts to be notified of any unusual activity.
- Report suspicious activity immediately: Report any unusual banking activity as soon as possible so that the bank can secure your account and prevent further fraud. Waiting to report fraudulent activity can cause more losses and leave you liable financially in the event that the bank refuses to reimburse you for failing to report in a timely manner.
- Don’t share personal information: Keep your online login information secure by not sharing it with anyone, including close friends and family members. You should also restrict access to the email address associated with your bank account to ensure people can’t access your banking information by requesting password resets via email.
- Change online credentials often: While some banks will prompt you to update your passwords, some don’t. It’s necessary to change your credentials frequently to reduce the likelihood of compromised passwords and code-cracking.
- Have a backup account: Keep a second bank account at a traditional bank in case your online bank account is compromised. You can then secure your money by moving your funds to your second bank account, ensuring you’re not inconvenienced for long.
Pros and Cons of Online Banking
Online banking is the new norm, but it can be a blessing and curse for some. Usually, online banks provide some or all of the banking products and services that most traditional banks offer, and often at a lower cost. While digital banks offer several benefits for consumers and business owners alike, online banking comes with certain inconveniences as well.
The following are the major pros and cons of online banking:
Online banking offers convenience. It provides an easy way to monitor your account, pay bills, and make transactions.
No in-person branches. All transactions should be done through the banks’ websites or mobile apps.
Online banks typically offer better annual percentage yields (APYs).
Fewer product options. Some online banks don’t have the variety of banking products traditional banks offer.
Because there are no physical locations, online banks pass on the savings from having fewer overhead costs to account holders in the form of lower account costs.
Cash deposits are not usually available at online banks, so it may not be a good option for those who need to process cash transactions regularly.
Online banking isn’t new to clients who bank with traditional banks, as most traditional banks offer online banking options. Online banks operate similarly to traditional banks’ online banking platforms. However, purely digital banks don’t have physical locations. Most banking products that small business owners need are available through online banks, and your account is just as secure.