In a not so distant past, the thought of an online bank would seem ridiculous. However, online banks are becoming increasingly more popular, and some would say for good reason.
Online checking accounts provide numerous benefits. But what is an online checking account and how can you open one? We’ll cover everything you need to know below.
How Does an Online Checking Account Work?
An online checking account is just like a traditional checking account you’d set up at a brick and mortar bank. However, these online only banks do not provide any physical locations.
All of your banking is done 100% online but the account holder will still be able to write checks and use a debit card. These online only banks are able to save quite a bit of money considering they do not pay for the real estate, maintenance, or have employees at physical locations.
As a result, online checking accounts tend to provide some benefits above and beyond what someone would receive at a brick and mortar bank.
What Is an Online Checking Account Used For?
An online checking account is used for paying bills, depositing money, and every day expenses. On a high level, the same uses a traditional checking account has is also present with online checking accounts.
The account owner is free to spend the money in their account as they choose, and one’s paycheck can be directly deposited into the online checking account as they choose.
What Is Required to Open an Online Checking Account?
Each online bank may have their own list of required documents one will need to open an account. However, the vast majority of online banks will require:
- A government issued ID, such as as a driver’s license or passport.
- A social security number/card.
- Many online banks require a minimum initial deposit. To make this possible you’ll need to provide your account number and routing number to your existing bank so money can be transferred accordingly.
Do Online Checking Accounts Charge Fees?
Unfortunately, this is not a binary answer. Some online banks charge fees, others do not.
Overall, the fee structure for most online checking accounts tend to be less than what the fee structure is at a traditional brick and mortar bank.
Where Can I Open an Online Checking Account?
Before you open an online checking account, be sure to shop around. There are many online banks that offer online checking accounts, each with their own unique benefits and fee structure.
Once you’ve found the bank you want to partner with, you’ll be able to open the account directly online on their website.
Do I Need an Opening Deposit With an Online Checking Account?
The vast majority of online checking accounts will require a minimum deposit. This deposit typically ranges from $25 – $100.
Features of Online Checking Accounts
Online checking accounts come with many familiar features/functions.
- Online checking accounts will allow the account holder to have their paycheck directly deposited into their account.
- Considering online banks do not have a physical branch one can visit to withdraw money, many online banks will waive all ATM fees.
- Many online banks and online checking accounts offer a greater interest rate, or APR when compared to traditional banks.
Advantages & Disadvantages of Online Checking Accounts
Now let’s review the advantages and disadvantages of online checking accounts.
Advantages of Online Checking Accounts
As mentioned above, online checking accounts function like traditional checking accounts. However, there are specific advantages to online banks:
- The account fees tend to be lower than brick and mortar banks.
- The interest rate provided for each account tends to be higher than brick and mortar banks.
Disadvantages of Online Checking Accounts
There are some disadvantages of online checking accounts that some have a difficult time looking past. These include:
- Withdrawing cash can be problematic. Sure, most online banks reimburse the ATM fee, but many ATMs restrict how much money you can actually withdraw. For example if you needed $1,000 in cash, you’d have a difficult time withdrawing that much money at once from an ATM.
- Depositing cash can also be a problem. Some ATM’s do allow you to deposit money, but not all.
- Traditional brick and mortar banks typically have safety deposit boxes. This will not be an option with any online bank.
How To Open an Online Checking Account
Opening an online checking account is easy! All you’ll have to do is:
Step 1: Choose Your Preferred Bank or Credit Union
Online checking accounts are becoming more popular. There are many banks/options one can choose from. Before opening an account, be sure to compare a few different options to find the one that’s best suited for you.
Step 2: Fill Out an Application
Once you’ve found which bank you’ll want to bank with, go through their application process. This process can usually be completed 100% online, although a phone call verification may be required for some banks.
Step 3: Provide the Necessary Documentation
You’ll need to provide identification when setting up an account. Be sure to have a valid government issued ID, and your social security number/card handy.
Step 4: Initial Deposit Into the Account
Once the application process is complete, the bank may require an initial opening deposit. You can either use your existing debit card to make the initial deposit, or you can wire money into the account.
Step 5: Activation, at Last!
Once the funds have successfully been deposited into your account, you’re all set! Your new online checking account will be activated and you’ll receive your debit card and checkbook in the mail.
Regular vs Online Checking Accounts
Traditional brick and mortar checking accounts are still the most popular checking account type in the United States. These accounts have many benefits.
Depositing/withdrawing cash, and safety deposit boxes, are the two features that an online checking account struggles to compete with. With that said, regular checking accounts typically have a higher fees and provide a very low interest rate on their accounts.
If you’re not utilizing a safety deposit box, and if you do not deposit or withdraw cash often, you may benefit from using an online checking account. You’ll likely save quite a bit of money making the switch considering the lower fee structure and more lucrative interest rate!
The internet has changed everything. Who would have thought 100% online banking would be an option? Although it may seem foreign, online checking accounts are becoming increasingly more popular. More and more money is being spent via a debit/credit card and the need to carry cash is decreasing.
Additionally, online checking accounts help keep more money in your pocket each month. Although their interest rates tend to be higher than a traditional checking account, they are not high enough to be considered a second revenue stream.
Consulting with a financial advisor is a great way to help create an additional revenue stream. Financial advisors will take a high level view of your finances and help invest your money in investment vehicles that are aligned with your goals and risk tolerance levels.