The term online banking is generally used to describe two distinctly different banking operations. Online banking, including paying bills and making transfers, may be available through a traditional bank. Online banking, in this description, simply means having some level of access to your bank through the internet. An internet only bank or online only bank, provides neither locations that you can visit, nor face-to-face interactions with bank tellers. All banking transactions are conducted through the internet, by phone or mail.

With the wide spread use of direct deposit, 1000’s of ATMs, debit cards, and credit cards, online banking has become a considerably more established method of banking. For many consumers the physical location of a bank has become irrelevant for their needs, yet others have found customer service online actually exceeds that found in a local branch. For many, the ability to transfer funds, pay bills and simply access accounts 24 hours a day makes the online bank experience more accessible, more convenient, and more desirable. As use of the Internet continues to develop in consumer financial transactions, more banks and thrifts are using the world wide web to offer a variety of bank products and services or otherwise boost communications with consumers.

Online bill paying has become the biggest catalyst to growth in online banking. Internet, or online, banking has grown in the aftermath of legislation that allows the use of electronic signatures for handwritten signatures to perform many types of transactions, including financial transactions and the protection of electronic funds transactions.

Online banking has expanded as more consumers have become accustomed to using credit cards and debit cards as their primary form of payment. Many consumers have started to embrace the use of online bill paying for their recurring monthly bills and charges. As regular, automated bill paying has become more widespread in electronic banking, more bank customers have gravitated to handling a greater range of expenditures through online bill paying.

Banks have been able to offer this service via the internet for sometime, the significant change has been the number of businesses that not only accept payments online but encourage their customers to use this method. Of course, bill paying isn’t the only service provided by online banks. Certificates of deposit, money market accounts, and a variety of checking and savings accounts can be opened online. And of course funds can be transferred between accounts and managed online. Online banks continue to expand their features as many banks try to become a one stop financial center for their customers.

There can be several key advantages to banking online besides not having to contend with poor customer service. First, you can do it from anywhere. From the office, from home, or while you are on vacation. Almost anywhere and anytime, as long as you have interenet access you can have access to your accounts. Another notable advantage of internet banks or internet banking is the competitive rates and fees that are offered. During any given time period, online banks offer some of the best rates.

Online banking gives the financial institution offering the services the ability to operate with very low costs. These savings come as a result of the low overhead costs that are associated with electronic transactions. For example, internet only banks can avoid paying bank tellers, renting the physical location of the bank branches and other overhead costs associated with running a regular bank. As a result of these low costs, internet only banks are able to offer special deals such as higher interest rates on savings accounts and CDs as well as free internet transactions and no-fee checking accounts to their customers.

The lure of high rate CDs and high yielding savings accounts is one of the biggest attractions to online banks in the current market. In some cases, they may even pass on better loan rates and deposit rates from savings earned from not having a network of brick-and-mortar branches.

Online banks allow you to check balances, transfer funds, pay bills and review your investments anytime and anywhere. You can often apply for a loan or open an account any time of the day or night. Of course, balancing your checkbook the old-fashioned way still works. Checking your balance online, however, lets you make sure that your payment to the mortgage or auto lender has cleared in time.

Your transaction history can be easily downloaded into a worksheet or other file in your personal computer that allows you to do personal-finance analysis. This might include calculating your average withdrawal history or identifying the peaks and valleys in your spending. People may find that online banking makes sticking to a budget easier because you can easily sort payments to see how much was paid to specific budget categories like electricity, cell service and health care. This saves time and confusion from sorting through months of paper statements and allows you to compare spent amounts with budgeted amounts.

The biggest drawbacks to online banking are the inability to speak directly to a teller or have your financial needs administered by a bank employee face to face. The disadvantages dealing with the extra effort that may be required to get set up and acount and make timely deposits.

With internet only banking there are a few soloutions to inability to take direct deposits like a physical bank branch. Some internet-only banks can accept non-electronic deposits, checks, through the mail. This may result in an additional time delay before you can access your money or a potential safety issue of mail theft. Other internet-only banks have another solution in which you create two accounts – this allows you to deposit your cash or check at a brick and mortar bank and then transfer your money to an internet-only bank account. This way, money can easily be moved back and forth between both accounts. While this solution is a lot safer and faster than the first method, it is still fairly complicated.

And for some consumers there is still the fear of security. Strong security measures that have been put in place at nearly every major provider has lessened the concern regarding financial and privacy fears. Financial institutions use Secured Socket Layer (SSL) technology to encrypt all of your transactions. These steps help to safeguard your personal data. Online banks also maintain a privacy policy that allows you to see under what circumstances a bank shares your information.

Protecting Yourself on Bank Web Sites

The FDIC warns that not all banks operating on the Internet are insured by the FDIC. Many banks that are not FDIC insured are chartered overseas. If you choose to use a bank chartered overseas, it’s important to know that the FDIC may not insure your deposits. Check with your bank or the FDIC if you’re not certain. Most bank Web sites have an “About Us” page that describes the institution. Look for information regarding the official name, their charter, address of the bank’s headquarters and information about its insurance coverage from the FDIC. It’s important to note that only deposits offered by FDIC-insured institutions are protected by the FDIC. Nondeposit investment and insurance products, such as mutual funds, stocks, annuities and life insurance policies that may be sold through Web sites or at the bank itself, are not FDIC-insured, are not guaranteed by the bank, and may lose value.

For example, watch out for copycat Web sites that deliberately use a name or Web address very similar to, but not the same as, that of a real financial institution. The intent is to lure you into clicking onto their Web site and giving your personal information, such as your account number and password. Always check to see that you have typed the correct Web site address for your bank before conducting a transaction.

Some other service disadvantages of an internet based bank is the inability to provide cashiers check or travelers checks. the fact that most internet-only banks do not have their own machines. Typically, you will need to pay a fee of a couple of dollars in order to use another bank’s ATM to withdraw cash. People who make frequent cash withdrawals with ATMs can incur large costs that may outweigh the costs of traditional bank transaction fees.

The Internet offers the potential for safe, convenient means to shop for financial services and conduct banking business, any day, any time. Overall, internet-only banking has some obvious benefits compared to traditional banks, but due to the inherent nature of internet-only banking, it may not be for everyone. Online banking should be comparable or cheaper than standard banking. You’ll want to be aware of any extra fees that exist for maintaining several accounts with the same or multiple institutions to fulfill all your short-term financial needs. Ask yourself, really, how often you need to go into a bank these days.

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