What kind of benefits does an online checking account provide over a standard checking account with a traditional brick-and-mortar bank?
Should you be enticed to try an online checking account or stick with the options in your local area?
4 Benefits of an Online Checking Account
Here are a few benefits of switching to an online checking account.
Interest on Deposits
For your average brick-and-mortar bank, offering interest on the deposits held in the checking account isn’t necessary.
These banks know people prefer to have a local bank staffed with people to talk to. That coupled with the fact that everyone needs a checking account makes it easy to offer a mediocre product without much customer retribution. Part of that mediocre product means no interest on your money sitting in the checking account.
With an online checking account you actually get to earn a little bit of interest on your deposits in the account.
You won’t get the earth-shattering interest rates of a few years ago, but it isn’t uncommon to find an account paying 0.40% to 0.75% interest for your checking account business. That may not sound like much, but it never hurts to earn a little bit more money in an account that you would probably have even without the interest.
More Reasonable Fees
Local banks and big banks make a ton of money off of their customers. And they need to in order to afford all of those branch locations.
Online banks competing with these institutions draw in customers with significantly lower fees.
Here are three fees you should expect to be lower or non-existant with an online checking account:
1) ATM Fees
If you can’t go to a physical branch location to withdraw money, you are kind of at a disadvantage because you have to rely on ATMs and getting cash back at stores that allow it. Online checking accounts eliminate this problem by giving you free access to ATMs across the country.
The specific terms are bank dependent, but usually you get either a certain number of ATM fees refunded to your account or all of them are refunded.
2) Overdraft Fees
Banks make a ton of money off of their customers by hitting them with overdraft charges each time they spend more than is in their account. Most online checking accounts will have an overdraft system in place, but normally the fees are significantly lower.
Big banks typically charge $35 per overdraft so if you swipe your card 5 times in a day you end up paying $175 in fees. Some online banks only charge $9 per day of overdrafting or will extend you an incredibly low line of credit that charges you pennies on the dollar for the overdraft.
3) Minimum Balance Fees
Some banks offer “free checking”, but the “free” part only applies if you meet certain requirements like minimum balances or minimum average daily balance. If you dip below these requirements during the month you get hit with an account maintenance fee.
Not so with online accounts: you can open an account with as little as $1 or $25 in most cases, and there is no fee for the honor of being a customer of the bank.
Transferring funds between accounts is really simple with online checking accounts.
Again, having easy online access and tools is a necessity of not having physical branches for customers to visit. You can send money to your savings account or to several brick-and-mortar banks easily through the online tools.
Paper Checks are an Option
Without a physical branch you might think you wouldn’t be able to write or receive paper checks. Both are untrue with most online checking accounts.
First, you can still write checks. Some online banks provide free standard checks for you to use while others give you the option of purchasing them.
Second, without having a physical branch the online bank has to come up with a way for you to be able to deposit any paper checks you receive into your account. Different methods are used: some let you scan the check into an online tool, some let you take a photo that does the same thing, and others give you deposit envelopes where you send the signed check in to the bank for depositing. Any of the ways works, it just depends on the bank you end up with as to which method they use.
Final Thoughts About Online Checking Accounts
If you are tired of your current bank taking your deposits and giving you little benefit for them, consider switching to an online checking account.
You’ll earn more interest, pay less fees, and still get all of the benefits of a regular checking account. The only reason not to switch would be if you heavily relied on going to the physical branch location many times per week. Otherwise, grab your debit card (and paper checks if needed) and make the move.
JP @ My Family Finances says
It’s amazing how attached people are to brick and mortar banks. This one seems like a no brainer to me. The online account is far superior.
Carl Lassegue says
You are right JP. People tend to stick to the familiar even if the alternative is much better. Many customers do not even go inside of the bank. They use ATM’s to deposit and withdraw yet they are still attached to that brick and mortar bank.
Although my online banking is part of a brick and mortar bank, it might as well be just online checking. I conduct 99% of my business online. I like the convenience of it.
Jenna, Adaptu Community Manager says
I don’t currently have an online checking account. But it’s definitely something I would consider in the future.
I have one and swear by it. I have ING Direct and USAA. USAA even waves all of my ATM fees up to a certain $ amount per month!
I was a happy, longtime ING savings customer, and switched to their checking after Wells Fargo slipped in a monthly fee recently. Unfortunately, two things happened in the first month that have me heading back to brick-and-mortar, albeit a credit union. First, I’m buying a home and need a cashier’s check, which ING told me they couldn’t do. Second and more importantly, my debit card number was stolen two weeks after getting the account and they cancelled the card immediately; kudos for quick action, but it left me without any access to my cash for 7 days until the new card arrived (unless I wanted to pay a $25 fee, which they wouldn’t waive even when I escalated to a manager; even Wells Fargo overnighted a card and gave me cash via a teller when this happened a few years ago). I was really surprised at ING’s customer service; their best suggestion was to ask if my Wells Fargo account was still open, and if I could access cash there.
So after a month with ING, I’ve decided that it’s fine to have as a supplemental account, and still great for savings, but I need a bank with real people for when things get messy. It’s a shame!
I have Charles Schwab and it’s the best thing I’ve ever done. All their 24/7 customer support are knowledgeable, patient, and kind. Zero ATM fee’s WORLDWIDE – I’ve tested it, trust me. You can write checks, online transfers of course, and investments too!
So happy with them.