Online banking refers to any financial services, such as transferring money, viewing transactions or paying a bill, that is performed electronically through the internet. It allows you to manage your money without visiting your bank or credit union in person.
What is online banking?
It’s likely you’ve already used online banking. If you’ve ever gone online to your financial institution’s website to transfer money, pay a bill or check your transaction history, that’s online banking.
Although often used interchangeably, online banking is different from digital banking. Online banking is a money management portal available through a website, whereas digital banking includes all aspects of banking that rely on technology, including online and mobile banking.
What about online banks vs. digital banks?
Online banks and digital banks don’t have any physical locations. All banking activities and services are done through the companion app, website or over the phone. Since they often lack physical locations, they can pass perks, such as better savings rates and minimal fees, to their customers because they have fewer operating costs than banks with physical branches.
A digital bank is often called a neobank. The difference between an online bank and digital bank is that digital banks are often financial technology (fintech) companies that offer online financial services through an actual FDIC-insured bank. A great example is Chime, which offers online banking services but isn’t an actual bank itself. Chime partners with Bancorp Bank and Stride Bank to offer its banking services.
An example of an only-online bank is SoFi, which recently received its banking charter and is FDIC-insured. It offers many of the same services you’d find at a traditional bank, including loans, checking accounts, savings accounts and more — just no physical locations.
Expert insight: Can online banks replace traditional banking?
Digital banks offer robust features and better rates but complicate verification. They won't completely replace traditional banks unless we become a cashless society. As long as there's physical cash and people need to make cash deposits, traditional banks are here to stay.
Also, digital banking complicates identity verification, especially with the rise in deepfake technology. Frontline staff at traditional banks have the upper hand in identifying red flags.
— Alexa Serrano Cruz, CAMS, Senior Editor, Personal Finance.
Pros and cons of online banking
Banking exclusively online has its benefits, but choosing a bank with physical locations has its place too.
- Easy money management. Access your funds on the go without visiting a physical branch.
- Notifications. From fraud alters to overdraft warnings, opt in to receive text or email notifications from your financial institution.
- Budgeting tools. Many online banking portals offer money management tools, like budgeting features or loan calculators.
- Live chat. In addition to phone and email support, you’ll likely have the option to live chat.
- Security. It’s not 100% risk-free, but most banks use industry-standard security measures to keep your information safe. Just be sure the financial institution is FDIC- or NCUA-insured.
- Limited cash deposits. Without using a physical branch, you’re limited to direct deposits, transfers or cash back from merchants.
- No in-person support. If you’re stuck in a situation that can’t be resolved via chat, a fully online bank won’t have any physical locations to help speed up resolutions.
- Smaller product offerings. While industry giants also offer loans, mortgages and investment accounts, online-only banks tend to specialize in checking and savings.
- Technical reliance. Technical difficulties could derail your ability to access and manage personal finances, which might present too big a risk for some.
How do I set up online banking?
You’ll first need to sign up for a bank account to enroll in online banking. Once you’ve signed up, you’ll automatically be asked to create a username and password to access your online banking portal. During the enrollment, you’ll often set up security questions and then verify your account.
Most banks now offer mobile banking services too. To access it, install your financial institution’s mobile app and log in with the same username and password used to create your account online.
How do I access my money?
While most fully online bank accounts don’t accept cash deposits, there are still several ways to access your money:
- ATMs. Most online banks have nationwide ATM networks and offer ATM reimbursements when withdrawing cash from an out-of-network ATM.
- Direct deposits. Receive your paycheck or government benefits directly into your online bank account.
- Mobile check deposits. Mobile apps let you e-deposit checks by taking a photo.
- Cash back at retailers. If your account comes with a debit card, you can request cash back when you check out at a grocery store or major retailer.
- Transfers. Send and receive money to another bank account or initiate a wire transfer or peer-to-peer transfer.
4 safety tips when banking online
Banks have kept up with comprehensive security and encryption to protect your personal and financial information. Still, you can take measures to keep your online banking safe from financial predators.
- Find a secure network. Avoid public Wi-Fi or hot spots when accessing your account. Hackers are known to intercept account info and passwords on these unsecured networks.
- Set up verification. Most bank accounts and online accounts offer two-step verification to keep your account secure.
- Choose a strong password. Use a unique mix of lower- and uppercase letters, symbols and numbers you’ll remember. And don’t share your login details with anybody else. The FDIC also recommends having different passwords for your various accounts.
- Turn on notifications. Whether email or text, consider opting in to receive notifications from your bank so you’re in the loop for things like fraud alerts or transfers.
Compare to other checking accounts
Narrow down top bank accounts with online banking portals by APYs, fees and opening deposits. Select Compare on up to four providers for a faster, side-by-side comparison.
How many Americans use an online bank?
Roughly a combined 37% of American adults are now banking online.
Online banking can streamline your ability to manage your finances without stepping foot in a bank. But the features and benefits you’ll find online depend on the bank or other financial institution you choose to do business with. As always, compare accounts from top online banks to find one with the online banking features you need.