Online Banks: everything you need to know

By offering digital only access, providers can make banking a more convenient service. But what exactly are online banks and how do they differ from traditional banks? 

Let's take a look. 

Online banks, also known as internet banks or digital banks, are financial institutions that operate primarily or exclusively online. Unlike traditional brick-and-mortar banks, these are digital first providers that don't have physical branch locations. 

Instead, these entities provide services through websites and mobile apps, allowing customers to manage their finances from anywhere with an internet connection.

The absence of physical branches sometimes allows online banks to operate with lower overhead costs. This can also lead to fewer extra costs passed onto customers.

Online banks function similarly to traditional banks in many ways, but with a digital-first approach. 

Here's a quick breakdown:

1. Opening an account: Customers can open a bank account entirely online by providing personal information and verifying their identity through digital means.
2. Deposits: While you can't walk into a branch to deposit cash, online banks offer several options for adding money to your account:
   • Direct deposit from employers
   • Mobile cheque deposits using your smartphone camera
   • Electronic transfers from other bank accounts
   • ATM deposits (at partner ATM networks).
3. Withdrawals and spending: Most provide debit cards that can be used at ATMs and for purchases.
4. Customer service: Online banks provide support through phone, email, chat, and sometimes video calls.
5. Security: Advanced encryption and security measures protect customer data and transactions.

Advantages of online banks

Online banks offer several benefits that make them an attractive option for many consumers:

Higher interest rates: Online banks often offer higher interest rates on savings accounts and certificates of deposit (CDs).

Lower fees: Many online banks have no monthly maintenance fees, lower overdraft fees, and fewer service charges compared to traditional banks.

Convenience: With 24/7 access to your account, you can manage your money anytime, anywhere. No need to rush to a branch before closing time or wait in long lines.

User-friendly technology: Intuitive websites and feature-rich mobile apps that make banking tasks easier and more efficient.

Innovative features: Savings goals, budgeting tools and real-time transaction notifications help manage your finances more effectively.

Disadvantages of online banks

Online banks can have their drawbacks too and it’s good to understand these:

Limited personal interaction: Customer service is typically limited to phone or email support.

Cash deposits can be challenging: Without physical branches, depositing cash can only really be done through an ATM.

Potential technology issues: While rare, website downtime or app glitches can temporarily limit access to your account. 

Limited services: Some online only banks may not offer the full range of products and services that larger traditional banks provide, such as mortgages or business banking.

To help you decide which type of bank is right for you, let's compare online banks and traditional banks across several key factors:

Ultimately, choosing between an online bank and a traditional bank will depend on your personal banking needs and preferences.

If you want to compare bank accounts, check out our hub page or look at some fee-free bank accounts here. You can also compare providers on our savings accounts and term deposit pages.