Online or digital banking provides individuals with the ability to manage their bank accounts over the World Wide Web using a mobile device or computer. As a result, there is no need to visit bank branches, and people can do all of their banking tasks when it is most convenient for them, including outside of normal office hours.

What is online banking?

People can bank on the Internet through online-only credit unions, online-only banks, or through the suite of online service providers that most local and brick-and-mortar credit unions now offer. People can usually pay bills, apply for loans, transfer money, deposit checks, as well as verify account balances and transactions.

How do these things work?

Online banking is designed to be efficient and convenient, saving individuals a lot of time and letting them do their banking transactions on their own schedule instead of only during the office hours of their local bank branch. Almost anything account owners can do at traditional credit unions, or banks can be accomplished on the Internet, starting with opening accounts. 

The one benefit that conventional credit unions and banks have had over their online counterpart is their ability to withdraw money using an Automated Teller Machine. Increasingly, online credit unions and banks are providing easy access to a network of Automated Teller Machines that will not charge account owners a fee. Some financial organizations will reimburse the Automated Teller Machine fees up to a specific amount every month.

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Opening accounts

People can open savings, checks, and other kinds of accounts online, usually without the hassle of physically signing or printing anything. With the digital signature capability, the process might now take less than ten minutes. However, suppose the person is a customer of a financial organization like conventional banks, credit unions, or lending firms that offer digital banking. In that case, they can register for online access through the organization’s digital portal. At a minimum, they will usually need the following things to get started on the digital platform:

  • A device with web browsers like smartphones, tablets, or personal computers
  • A stable internet connection
  • Their bank account number
  • Personal details to verify their identities like Social Security number or birth date

People will need the same things to open accounts with online-only credit unions or banks (excluding their bank account numbers) with which they don’t have existing relationships. They may be asked for additional identification verification like a driver’s license. 

Registration will involve setting up logins, usually the user’s email address, username, and password. Once the account owner completes registration, they can log in to their account and start their online banking journey with their internet-enabled devices.

Paying bills

Instead of writing checks to pay utility, credit card, and other bills, financial institutions can print and mail checks for the account owner every month. But for more convenience, it is also possible to send funds to payees electronically, even if the amount the owner owes changes every month.

Fund transfers

If people need to move funds from their checking account to their savings account or into a CD (Certificate of Deposit), they can carry out these interbank transfers on the Internet. They can even link their accounts at various banks or send funds to family members and friends almost instantly through P2P or Person-to-Person services accessible through their bank.

Loan application

Getting loans is usually a paperwork-intensive process. The good news is, it should not have to be. Filling in the application on the Internet speeds the process of credit checking, enabling financial institutions like conventional banks, credit unions, or lending firms to respond with answers a lot quicker. In addition, some service providers that offer online loan applications make funds readily available the same day the borrower gets approved for the loan. Other lending firms that operate entirely on their digital platform can make near-instant lending decisions.

Depositing checks

When people pay someone with checks, it is a lot easier to deposit checks from the comfort of their home if both parties have smartphones. Using mobile check deposits, people snap an image of the check through mobile applications of their banks and submit it for payments. There is no need to mail the physical check.

Viewing past and present transactions

A lot of banks, credit unions, or lending firms make it easy for people to check their available balances, verify their latest transactions went through, as well as review previous monthly statements through the Internet. Individuals should be able to search their transactions by type and time frame, like bank card payments.

Staying informed

Another significant benefit of digital banking is the ability to set up various alerts. For example, individuals can receive emails or text messages when their financial institution notices possible fraudulent activities or their balance goes below a particular amount. In addition, individuals can be notified when the deposited fund is available and when the check is cleared. 

These alerts are excellent for informational purposes. But, more importantly, it can help people quickly stop fraudulent activities or criminal acts. For example, suppose the person is notified of changes in their password, and they didn’t make the change. In that case, they can immediately contact the financial institution and ask to prevent the perpetrators from draining their account.

Conventional versus digital banking

There are benefits to be gained by using banks through which the person exclusively or primarily manages their account through the Internet. Still, conventional banks have also a lot of advantages.

A better interest rate

Online-only financial institutions tend to offer higher annual interest rates, usually referred to as the APY or Annual Percentage Yield, on people’s deposits. That is because they do not have the overhead cost of brick-and-mortar financial institutions and can pass some of the savings to customers. 

But the online division of some conventional banks may also offer pretty competitive interest rates. Digital banks also offer a lower IR on debentures, which is called an APR or Annual Percentage Rate. People usually want higher IRs on their savings accounts so they can make their money work harder for them. 

On the flip side, a lower interest rate is desirable when a person borrows since it can reduce the total cost of their debenture. It is a good idea to shop around and compare online rates to conventional bank rates, but people will almost always do better when doing digital banking.

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Lower charges or fees

These financial institutions usually charge a much lower fee than conventional institutions because they pay more in IRs. As a matter of fact, there is a good chance that they charge lower fees for particular services or for failing to maintain minimum average balances.

In-person transactions

Despite offering the capability to deposit physical checks through mobile deposits or withdraw funds through affiliated Automated Teller Machines, digital financial institutions may be impractical if people frequently make big withdrawals or deposits and need to do it through traditional means. 

Some companies have daily mobile deposit amount limits and ask individuals to visit an Automated Teller Machine or branch to make deposits exceeding these limits. It may prove pretty hard if the institution does not have a big network of free Automated Teller Machine or branches nearby. A lot of these organizations also practice daily limits on the amount people can withdraw from their machines. 

If people need more money and cannot convince the bank to increase the limit, they will need to request cash advances in person, which individuals cannot do if they cannot visit the branch. Conventional banks can also provide certain notary services, cashier’s checks, or safe deposit boxes. Online platforms usually cannot offer these services.