What Is Online Banking and How Does It Work?
4 Min Read | Updated: December 15, 2023
This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.
Online banking offers a great deal of convenience, allowing you to access your bank account or conduct transactions via your smartphone, tablet, or computer.
At-A-Glance
- A surge in customers signing up for online banking during the first half of 2020 accelerated Americans’ long-term shift toward digital finances – especially via mobile apps.
- Digital banking can save you plenty of time – you’ll make fewer trips to the local branch – and help you stick to a budget.
- Cyber-fraud is a disadvantage but there are steps you can take to protect yourself, like a tricky password and two-step authentication.
Online banking has grown in popularity, with an estimated 43.5% of Americans today handling all of their banking online.1
One of the main benefits of online banking is convenience. With online banking, you can do many financial transactions that you would at a physical bank, online.
As with most things, there are advantages and disadvantages to online banking. Learn the ropes and you can build a banking strategy that gives you the best of online and off.
Advantages of Online Banking
Convenience: One of the best features of digital banking is that it’s at your fingertips 24/7. You can check balances, pay bills, and even deposit checks when you log in to your online bank account. Many online banks offer 24/7 customer service, too.
Flexibility: With online banking, you can access your account from anywhere you have a secure internet connection.
Automated bill payment: Paying your bills on time can help your credit score. Online banking often has options to set up automatic bill payments to help you make sure you always pay recurring bills on time.
May streamline check deposits: If you still work with checks, you might be able to eliminate that time sink, as most banks now have an app that allows you to make a digital deposit: log into the app, upload a photo of the front and back of a paper check, hit submit, and you’re done. Keep in mind, however, that there may be limitations on check deposits. This will vary, depending on the institution that you use.
Could help you track your money better: It can be easier to keep tabs on debits and credits right on your phone or computer. You can also set up all sorts of helpful text or email alerts that can make it faster and easier to stay in control. Popular reminders include getting pinged when an auto bill payment is going to be sent, when a direct deposit lands in your account, and a friendly warning if your balance is getting low.
Could allow you to earn higher interest on savings: Some online banks pay higher interest on savings accounts when compared to traditional banks. You’ll also want to consider high yield savings accounts that can help you to get better returns for your savings.
Disadvantages of Online Banking
Missing the human touch: If you value having face-to-face chats with a human who can respond instantly and knowledgeably to most questions that come to mind, then online banking may not be for you.
Possible limits on digital check deposits: If you frequently have paper checks you need to deposit, you may not be able to use the digital deposit app feature for everything. Check with your bank on limits for digital banking deposits.
Staying on alert for cyber fraud: Online banking offers convenience; however, it can also make you vulnerable to scammers who may try to gain access to your account. By remaining vigilant, you can take steps to reduce your chances of falling victim to common scams.
Even simple steps can help. For example, to avoid downloading a fraudulent app, log into your bank account and use the bank’s link to its app. Also, don’t skip smart security steps. Use a complex password (they get easier to remember the more you use them), agree to two-step authentication, and don’t log in using public Wi-Fi. A trick for remembering that password: Log in and out a half dozen times right after you set it to help get it set in your mind.
The Takeaway
Online banking isn’t just convenient, it can be a great tool to help you take control of your personal finances. Having real-time spending and deposit information at your fingertips makes budgeting all the easier to stick with, and automatic bill pay is a great way to help build your credit score.
Carla Fried is a freelance journalist who has spent her entire career specializing in personal finance. Her work has appeared in The New York Times, Money, CNBC.com, and Consumer Reports, among many other media outlets.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
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The material made available for you on this website, Credit Intel, is for informational purposes only and intended for U.S. residents and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.
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