What are the pros and cons of online banks?

Online banks, or neobanks, are becoming more common and popular in Australia. 

There are big names like ING that you might have heard of and smaller ones slowly growing in popularity like UP. 

But what’s the difference between an online bank and its physical counterpart? Well, nothing really, at least when it comes to day-to-day banking. The major difference is that online banks are exclusively online, just like their name implies: you will not find a physical branch or a branded ATM anywhere. This is different from online banking, which is a service offered even by banks with physical locations. 

Below we’ve listed some of the pros and cons if you’re thinking about switching to an online bank.

Pros of online banks

Online banks didn’t really exist a decade ago, so why are many Aussies making the switch?

Some of the pros include:

Lower fees

Since online banks don’t have to spend money on branches or ATM maintenance, they tend to offer lower fees. Many online banks eliminate monthly service or overdraft fees altogether, making banking cheaper for customers.

Easier to access

Just like the name suggests, online banks are exclusively online. That means opening a new account, closing an old account, and applying for a home loan or personal loan are all done on the bank’s website or app. No more need to dash to a bank during working hours.

24/7 online and phone customer service

Many online banks offer 24/7 virtual customer service to make up for the lack of in-person services. You can reach out to an online bank via the phone, email or online chat at any time of the day.

Cons of online banks

Just like everything in the world, there is a good and a bad side to online banks. They might not be ideal for those who are a bit more old-school or traditional.

Some of the cons include:

No physical branches

If you prefer face-to-face conversations with a bank teller, that becomes impossible with an online bank. Dealing exclusively with apps and online forms can be frustrating if you’re not given a straightforward answer to your exact problem.

Cash could be difficult to deposit and withdraw

Since there are no physical bank locations, it’ll become more difficult to deposit cash into your bank account. You’ll need to find out if the online bank offers an in-person partner through another bank. If it doesn’t offer that option, you might need to deposit the cash into a separate local bank branch and transfer it wirelessly. Similarly, although online banks offer cash withdrawals from ATMs, it may come with an additional fee you’ll need to watch out for.

What works best for you depends on individual circumstances and financial needs. For example, if you deal with a lot of cash maybe an online bank might not be the best option. Alternatively, if you never touch cash and want a bank that is exclusively online every step of the way it could be a reason to switch.

If you’re looking for a new bank account, you can start comparing below.