5 Online Banking Myths and Realities

Online banking offers a convenient way to manage your money. Plus, online banks typically offer attractive perks such as competitive rates on savings and no-fee checking accounts. Still, many consumers worry that online banks aren’t as secure, dependable, or customer-friendly as the big traditional players. Are they right to be concerned?

While all types of banks have pros and cons, many fears about online banks are actually based on misinformation. Below, we debunk five common myths about online banks and uncover some important truths about online vs. traditional banks.

Myth 1: Online Banking Isn’t Safe

Security is often the biggest concern about online banking, and in a world in which we’re constantly hearing of data breaches, that’s a valid consideration. But both online banks and traditional banks store your data digitally and are susceptible to data breaches.

That said, both online banks and traditional brick-and-mortar banks go to great lengths to protect your personal and banking information, including using encryption software (which blocks your accounts to unauthorized parties) and mult-factoring authentication (which requires you to enter unique personal information to access your account). Many online and traditional banks also offer 24/7 account monitoring, instant card freezes, and real-time alerts so you’re aware of any unusual account activity as soon as it happens.

There are also steps you can take on your own to keep your accounts safe (regardless of where you bank). These include choosing a unique user ID and password, not using public wifi when you access your accounts, and avoiding phishing attempts to get your banking information.

Myth 2: You Can’t Get Help From a Human

Many consumers like being able to walk into a physical location and speak to a real human when they need assistance. And that’s simply something online banks can’t offer. By nature, there are no brick-and-mortar locations because all customer service is virtual. But that doesn’t mean mobile banking doesn’t come with good customer service.

Some online banks offer phone-based customer service during specific business hours so you can speak with a human customer service representative in real time when there’s an issue or you simply want someone to walk you through setting up bill pay or making an online transfer. In addition, many offer 24/7 customer service via live online chat (with a human, not a bot, on the other end), as well as help via email. A lack of physical locations doesn’t necessarily equate with a lack of good customer service.

Recommended: How to Deposit a Check

Myth 3: It’s Hard to Access Money From an Online Bank

It’s true that you can’t visit a bank branch and withdraw money at a teller window with online banking. But online banks typically partner with wide ATM networks to offer customers a convenient way to withdraw cash at no cost from their accounts.

You can also access money in an online account by transferring it to an account at a different bank or using the bank’s bill pay function. If you have an online checking account, you can use your debit card for purchases and may be able to order checks. Some online banks also offer a peer-to-peer (P2P) payment service, so you can send money to friends and family directly from your bank account.

Myth 4: Online Banks Aren’t Insured

Like traditional banks, online banks are typically insured by the Federal Deposit Insurance Corporation (FDIC). This means your deposits are protected up to $250,000 (per depositor, per insured bank, per account ownership category) if the bank were to go out of business. Co-owners of joint accounts are each insured up to $250,000 for the total they have in joint accounts at an insured bank.

If you opt for an online credit union instead of an online bank, your money won’t be insured by the FDIC, but it will still be protected. Credit unions are covered by the National Credit Union Association (NCUA), which offers similar insurance.

Before opening an account at an online (or brick-and-mortar) bank, it’s always a good idea to make sure it’s insured. You can do this by using the FDIC’s BankFind tool or the NCUA’s Credit Union Locator tool.

Myth 5: The Big National Banks Offer Better Rates

You might assume that big banks offer the best deals due to their size and scale. But it’s more likely to be the opposite: Online banks typically beat out the major national banks when it comes to annual percentage yields (APYs) on savings accounts, with some offering 10 times the national average.

How do they do it? Online-only banks generally have lower overhead costs and can pass that savings to their customers in the form of higher-than-average yields. Many of these banks also offer better rates as a way to compete with the bigger players for customers.

In addition to better rates, online banks also tend to charge fewer and lower bank fees compared to the big traditional banks. Many online accounts don’t charge monthly service fees, for example, and some don’t charge overdraft fees, either.

Understanding Digital Banking Features and Limitations

Online banks may offer several advantages over traditional banks, including higher APYs on checking and savings accounts and lower (or no) fees. They also tend to outshine traditional banks when it comes to technical innovation, offering state-of-the art banking platforms and apps.

That said, digital banking does have its limitations. Here are some downsides to consider:

•   No branches: Since they lack physical locations, online banks aren’t able to provide customers a way to interact face to face with a teller or another bank representative. They also can’t offer services that require a physical location, such as getting a cashier’s check or renting a safe deposit box.

•   Cash that’s potentially harder to deposit: It’s not always as straightforward to deposit cash into an online bank account. You may need to deposit cash at a participating retailer for a small fee rather than at an ATM, for example, or use another option, such as depositing your cash into a traditional bank account and transferring it to your online bank account.

•   Fewer financial services: Unlike large traditional banks, online banks sometimes aren’t a one-stop shop. Some only specialize in a few types of accounts. While others offer a range of products and services, including credit cards and loans, they generally don’t have as many products and services as the biggest brick-and-mortar banks provide.

Recommended: Pros and Cons of Online Banking

The Takeaway

Online banks work very similarly to traditional banks. They just lack physical locations for conducting in-person services. They typically offer the same kinds of checking and savings accounts that you may find at brick-and-mortar banks. And since online banks don’t need to maintain and staff physical locations, they can often offer higher interest rates on both checking and savings. While some people may be concerned about the safety and security of online banks, it’s important to know that online banks have robust protections in place just like traditional banks.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

Is online banking safer than traditional banking?

Online banking and traditional banking are considered equally safe. Both online and traditional banks generally use robust security measures such as encryption, multifactor authentication, and fraud monitoring to protect customer accounts. In addition, both types of banks are usually insured by the Federal Deposit Insurance Corporation (FDIC), which means your funds will be covered (up to the insured limits) even if the bank were to go out of business.

Can I do everything online that I can do in a physical bank?

You can do nearly everything online that you can do in a physical bank, including opening an account, making transfers, paying bills, depositing checks, and managing your account. Many banks also offer one-on-one customer service via phone or online chat. However, certain services, such as obtaining cashier’s checks, notary services, or large cash withdrawals generally require visiting a physical bank.

How does online banking affect my privacy?

Information that is stored digitally (by an online or a traditional bank) could potentially have an impact on your privacy, as online information is susceptible to cyberattacks. However, reputable banks use strong encryption and cybersecurity practices to protect customer data. There are also steps you can take on your own to protect your accounts, including choosing a unique user ID and password, not using public wifi when accessing your accounts, and logging out of your account after every session.

Photo credits: iStock/AleksandarNakic

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