Online Banking : The Future Of Personal Finance

What Is Online Banking ?

Most people understand what Online Banking is, it is very self explanatory, a bank online. You probably have heard a lot about online banks and about the benefits of using one, but most people are scared to trust a bank without bricks.

It is a system that allows people like you and me, individuals, to stay at home, use their computer and perform banking activities through the internet. Isn’t that nice? No more waiting in line, no more dealing with the long faces and bad attitude of bank tellers, and these examples are just the tip of the iceberg, keep reading and you will learn the real benefits of using a Virtual Bank.

When I got interested for the first time in opening my first online bank account I performed a lot of research, soon I discovered that I had the wrong idea about how the whole thing worked. I found out that this type of banking isn’t out to change your money habits, they are just using computers and technology to make your life easier, by getting rid of some aspects of traditional banking to make your finances more effective and a lot faster, they are just getting rid of all the paper based features and all of the time consuming characteristics that are involved in traditional banking.

Some traditional banks have noticed that people are starting to trust online banks, so a lot of physical banks have gone into the online banking system as well, some “real banks” are now online. There are many banks that are online only and have no physical existence.

Banks going online was something that was expected as soon as this whole internet thing got started, it just made sense, and since banking entities already had unbelievable computer networks that automated millions of transactions each day, it was just a matter of time for them to connect that same internal electronic process with their clients at home, of course the process had to be adapted, but through these adaptations a lot of value was added. Cost reduction also played an important role since paper handling and expensive teller interactions could be reduced or even eliminated for good.

After opening my first online bank account I soon discovered the great perks of having one, the best feature probably was saving a lot of time, paying my bills through one single click sure made my life easier, then I realized that I could do a lot more things than just paying my bills through one click or the automated payment option, I could also transfer money to other banks, transfer money to other brokerage firms, receiving email alerts for different things for example if my balance was running low, viewing images of cancelled checks online, better interest rates on interest bearing savings accounts, etc.

You can choose an online bank, traditional banks online allow customers to perform all the typical routine transactions like, balance inquiries, stop payment requests, bill payments, account transfers, some will even offer you credit card applications and online loans.

Most large banks, regional banks, and even smaller banks offer some form of online banking, it is also known as  home banking, internet banking, electronic banking or PC banking. The challenge for banks online is to get customers to learn how to use the system as well as making them trust the system. Even though most large banks offer online banking for free or for a small fee some have limited functionality, for example you can take a look at your balance but you can’t make any online transactions.

Hurdles to Overcome

Online banking security is the primary issue, banks are trying to convince people that through the online system their financial security will improve. You can check your statement at any time, you can find about unsual activities in your bank account much sooner as well, you can be alerted by e-mail alerts when large sums have been withdrawn from your account. So through online banking safety is actually strengthened they just have to reach more people with detailed information on how things can be better through one of these accounts and how safety is no longer an issue.

Benefits of Opening an Online Bank Account

Earn More Interest

This is probably the most appealing factor and this is where they have an edge over brick and mortar banks, online bank accounts have succeeded primarily for their ability to earn you more interest on your money. This means that you will make more money on your savings account rather than if you used your traditional brick and mortar banking entity for a high yield savings account. Online banks offer interest rates as high as 5% each year while traditional banks will earn less than 1% per year, although rates constantly change, so you have to keep checking up on them, go to moneyrates.com to find out the current online high yield savings accounts so you can get an idea of what you can get right now.

24/7 Support

You can access your bank at anytime anywhere. You can access  your account and manage it at any moment, you don’t have to re-schedule or anything for your other appointments, you can don anything or everything that you have to do throughout the day and after your day is over, you get home, you turn on your computer and manage your account.

You Can Save Money Automatically

There are online banks which I will address on future posts so I don’t give out free advertising before they pay me. Anyway there are virtual banks that will automate the whole savings process, all you have to do is hit “enter”, you tell them how much you want to save and they will automatically throw exactly that amount into your savings account each month, then they will make the other payments that you requested. Yes they automatically make all payments for your bills as well, so you don’t have to worry about a thing, this will help you a lot because you will be very responsible about your savings and you will have a lot of extra time, just think about how much time you waste at traditional brick and mortar banks.

Lower Fees

The only fee you usually have to worry about is the fee that you have to pay for withdrawing cash money from ATM’s if you have an ATM card. The rest is usually free, because as you know since they are online they don’t have the same operational costs as a physical bank. Usually there is no fee to join an online bank, it’s free, no transfering fees of money between accounts, and no fees to manage or access your account.

Easy and Fast Access

You not only have 24/7 support, you can also get to your bank fast, you are as far from your bank as your are from your computer, if you are reading this right now then you are a click away from your bank, so this is very convenient since usually banks are very far from where you live or work.

Transactions Are Faster

They are faster than traditional banks to execute and confirm transactions.

More Efficient

You can access and manage all your bank accounts, CDs, IRAs and even securities.

Disadvantages

- Delays in the process of transactions. It can take up to two weeks before payments are due.

- Setting up an online bank account can take some time.

- Getting used and learn how to manage your account can take some time as well.

- Some banks don’t give full online support.

- You have to mail in deposits instead of making direct deposits as traditional banks. (this is for online only banks)

- No traveler’s check, no cahsier’s check.

What to Look for When Choosing an Online Bank

- Good Tools : It should be easy to use, it should provide features such as showing you images of your checks, scanned images from the front and backside, archiving of your check images and your account statements. Also tools that allow to create budgets, they must show your latest transaction reports such as payments, transfers, and deposits. They must provide you with security alert systems such as emails, alerts from possible e-mail phising and things like that.

- No Fees

- High Interest Rates for Your Savings Account.

- Transfering funds has to be easy, so you can set up automatic payment features.

- Account Aggregation, so you can manages all your bank accounts from your online bank account.

Basically they must have everything I talked about in this page, after comparing your online option with the things that I talked about here, and if you make a green checkmark for each one of the things that are on the list, then you have a winner.

Note: There are more advantages than disadavantages when using online banks compared to brick and mortar, I hope you get the picture and that this webpage helps you out create better financial planning strategies.