The Advantages and Disadvantages of Internet Banking

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Published: 11th January 2012
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Internet banking has become the preferred way for many people to perform simple banking transactions. It enables you to pay your bills, transfer funds from one account to another, and check your account without having to be physically present at a bank. As such, it can help you save a lot of time and manage your financial life in a more organized manner. Although Internet banking can be beneficial to consumers in many ways, it does not mean that online banks are an adequate substitute for brick-and-mortar banks in all banking situations. This article will explore the advantages and disadvantages of Internet banking.

When the Internet became commercialized in the early1990s, some established brick-and-mortar banks started to investigate the possibility of providing limited online banking services as a way to reduce their operating costs. These early efforts met with great success, and many banks began to establish websites to create an online presence. Consumers were able to perform simple banking tasks, such as opening new accounts, applying for loans, and downloading banking forms, at the websites. The increasing popularity of Internet banking led to the emergence of Internet-only banks. These so-called “direct” or “virtual” banks did not have branch offices, but they could provide a complete range of banking services, as well as financial services. Since they had lower overhead and labor costs, they were able to offer higher deposit account interest rates, reduced loan costs, and lower service fees. Today, a large percentage of all banking transactions are performed through the Internet.

The Advantages of Internet Banking

Convenience
One of the main advantages of Internet banking is that it allows you to perform bank transactions any time you want. As long as you have an Internet connection, you can access online banking services 24 hours a day, every day of the year, except for times when the website has to undergo maintenance. With just a few clicks, you can get banking information, find out about your account balances, and perform transactions. Online banking makes it possible for you to do most banking tasks without having to travel to your bank.

Ease of Use
It is very easy to set up an online banking account. All you need to do is provide information about your traditional bank account. You can choose to input your data online or download a form and mail it to the bank. All direct banking websites provide very clear instructions on how to perform banking transactions, and they also have customer representatives who can help you solve any problem that you may encounter.

Better Rates
As mentioned earlier, online banks have lower operating costs, and they can afford to pay higher savings interest rates and charge lower loan and mortgage rates. Some of them also have high-yield checking accounts and certificates of deposit, as well as certificates of deposit with no penalty for early withdrawal. There are online banks that allow you to open an account with no minimum deposit and maintain it with no minimum balance and service fees.

Advanced Banking Features
Online banks provide a wide range of advanced features to enable you to do financial planning more effectively. Such features include budgeting and forecasting tools, loan calculators, investment analysis tools, and equity trading platforms. Some banks also offer online bill payment service, tax preparation tools, and downloadable tax forms.

Transfers
Transfer of funds can be made electronically from a traditional bank account. Most online banks allow you to make as many transfers you want at no cost at all, including transfers to other financial institutions. They can also accept deposits and withdrawals that are authorized by you, such as automatic bill payment and payroll deposits.

Mobility
Almost every online bank offers mobile capabilities now. New applications are constantly being introduced to make it possible for more banking activities to be performed through mobile devices.
Disadvantages of Internet Banking

Relationship with Bank
In a traditional bank setting, you have a better opportunity to develop a more personal relationship with your bank. If you know some of the employees who are working in your local branch, you may be able to obtain special services that are not available to ordinary customers. A bank manager who knows you on a personal level is more open to negotiation, and he or she can vouch for you if you need to get a loan from the bank.

Services
Some of the financial services that are provided by traditional banks are not offered by every online bank, such as brokerage account and insurance. Additionally, traditional banks also offer services such as bank signature guarantee and notarization, which are required for certain financial and legal transactions. If you are a loyal customer at your local bank, you may also get better rates and financial advice at no additional charge.

Transaction Issues
Some complex transactions and complicated banking problems can only be addressed effectively in a face-to-face meeting. Your local bank can arrange a meeting with you and call in banking experts to help you solve your problems. Also, a traditional bank can perform international transactions more efficiently than online banks. Another disadvantage of using an online bank is that you may have to pay ATM usage fees. Most online banks do not have ATM machines, and they have to establish an alliance with other banks that have ATM networks. Those that do not have such an alliance usually charge a fee for ATM use.

Security
Although very advanced encryption software is being used by online banks to protect account information, no system is completely invulnerable to security breach. All online bank accounts are at risk of being phished, hacked, or compromised by other unauthorized activities. However, security breach is usually discovered more quickly nowadays, because online bank customers check their account balances more often. Another problem that is faced by online banks is identity theft. Some banks take more extensive measures to counter identity theft than others. If you are planning to open an online banking account, it is essential that you check the bank’s security measures and policies first before you proceed.

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