What is 'Online Banking'

Online banking allows a user to execute financial transactions via the internet. Online banking is also known as "internet banking" or "web banking." An online bank offers customers just about every service traditionally available through a local branch, including deposits, which is done online or through the mail, and online bill payment.

BREAKING DOWN 'Online Banking'

Online banks do not provide direct ATM access, but they make provisions for consumers to use ATMs at other banks and retail stores, and they may reimburse consumers for some of the ATM fees charged by other financial institutions. Reduced overhead costs associated with not having physical branches typically allow online banks to offer consumers significant savings on banking fees; they also offer higher interest rates on accounts. Online banks handle customer service by phone, email or online chat. Online banking is frequently performed on mobile devices as Wi-Fi and 4G networks have become widely available. In the United States, prominent online banks include Ally Bank, Bank5 Connect, Discover Bank, GE Capital Bank and Synchrony Bank.

Advantages of Online Banking

Convenience is a major advantage of online banking. Basic banking transactions such as paying bills and transferring funds between accounts can easily be performed at times convenient to consumers. In effect, consumers can perform banking transactions 24 hours-a-day, seven-days a week. Online banking is fast and efficient. Funds can be transferred between accounts almost instantly, especially if the two accounts are held at the same banking institution. Banking accounts can be monitored more closely thanks to online banking. This allows consumers to keep their accounts safe. Around-the-clock access to banking information provides early detection of fraudulent activity that has the potential to cause financial or damage loss. Online banking allows for the opening and closing of fixed deposit and recurring deposit accounts that typically offer higher rates of interest.

Disadvantages of Online Banking

For a novice online banking customer, using systems for the first time may present challenges that prevent transactions from being processed. Although online banking security is continually improving, such accounts are still vulnerable when it comes to hacking. Consumers are advised to use their data plans, rather than public Wi-Fi networks when using online banking, to prevent unauthorized access. Additionally, online banking is dependent on a reliable internet connection. Connectivity issues from time-to-time may make it difficult to determine if banking transactions have been successfully processed. On occasion, consumers may prefer face-to-face interactions for more complex banking issues.

RELATED TERMS
  1. Business Banking

    Business banking is a company's financial dealings with an institution ...
  2. Branch Banking

    Branch banking is engaging in banking activities such as accepting ...
  3. International Banking Act of 1978

    The International Banking Act of 1978 put all American bank branches ...
  4. Chain Banking

    Chain banking is a form of bank governance that occurs when a ...
  5. Commercial Bank

    A commercial bank is a type of financial institution that accepts ...
  6. Universal Banking

    Universal banking is a system in which banks provide a wide variety ...
Related Articles
  1. Personal Finance

    Which Banks Pay the Highest Interest Rates on Savings Accounts?

    Online banks offer the best savings account interest rates, but all banks offer the same features, so it pays to read the fine print.
  2. Personal Finance

    Online Banks: Lower Costs And Little Sacrifice

    For many, online banking has become a day-to-day routine. Still, there are some holdouts who refuse to accept the method.
  3. IPF - Banking

    These Savings Accounts Have the Highest Interest Rates

    Don't expect interest from a bank savings account to make you rich. You can do better, however, than the paltry 0.08% average paid in 2015.
  4. Insights

    The World's Top 10 Banks

    Learn more about the world's largest banks and how more financial power shifts eastward as China is home to four of the world's largest banks.
  5. Personal Finance

    Cut Your Bank Fees

    Find out how to get the bank to pay you for using their services, not the other way around.
  6. Personal Finance

    5 Bank Fees You May Not Know About

    Banking regulations have recently changed and fees are following suit.
  7. Small Business

    Best Checking Accounts For Small Businesses

    What you need to know to choose the best checking account for your small business – and where to look.
  8. Insights

    Will “Internet-Only” Banks Change Chinese Banking?

    Private players offering internet-only banking services to a large section of China's population must overcome some challenges to gain market momentum.
RELATED FAQS
  1. What economic indicators are important to consider when investing in the banking ...

    Find out which economic indicators are most useful for investors in the banking sector, especially those influenced by central ... Read Answer >>
  2. What are the 9 major financial institutions?

    There are nine major types of financial institutions. Understand the major types of financial institutions that exist and ... Read Answer >>
  3. What factors are the primary drivers of banks' share prices?

    Bank share prices are driven by the same forces as any other shares including market sentiment, expectations about the future ... Read Answer >>
  4. How do investment banks help the economy?

    Learn more about the functions of investment banks in a modern economy and how investment banks have been treated differently ... Read Answer >>
Trading Center