Online Banking

Introduction

When was the last time you went inside a physical, brick-and-mortar bank? A little weird, wasn't it? It's kind of like walking back in time, to an age where tellers knew you by your first name and little kids were given leather-bound savings account passbooks for Christmas. Bank branches can feel like ghost towns at times. Big, half-empty rooms with a bored branch manager, an even more bored security guard and one lonely teller retrieving an account balance for a septuagenarian customer.
Most of us prefer to do our banking online, whether from a home or office computer or our Web-enabled smartphone. According to the American Bankers Association, 62 percent of American adults prefer banking online in 2011. And that holds true for older Americans. An impressive 57 percent of Americans above age 55 prefer to bank online, up from 20 percent in 2010

Online banking (or Internet banking or E-banking) allows customers of a financial institution to conduct financial transactions on a secure website operated by the institution, which can be a retail or virtual bank, credit union or building society.

How Online banking works

Electronic banking transactions typically involve three parties the bank, the consumer and a merchant. In some cases, only the bank and the consumer must participate to complete the transaction. The consumer initiates the transaction by either submitting the request online, going to a store or visiting an ATM machine. The bank receives the request and either approves or rejects the electronic transfer of funds based on the accuracy of the data provided in the request (card number, address, routing number or account number) and the available funds in the case of withdrawals. After processing is completed, the funds electronically transfer to or from the consumer's account to reach the intended recipient.

History of Internet Banking

Advantages of online banking

24-hour Access to Your Account

You can get the account information you need whenever you need it in the privacy of your own home. Better yet, if you travel a lot like I do, you can access your account anytime, anywhere.

Real-Time Information

You'll stay up-to-date on the status of your account, including your current balance, pending items, most recent transactions, etc.

Help Prevent or Minimize Fraud

With online banking, you can check your account regularly and notify your bank immediately when you see a transaction that isn't familiar to you.

Automatic Savings Plan

You can make account transfers any time you want. Many banks will also allow you to set up an automatic savings plan to transfer money from your checking account to your savings account each month.

Planning Tools

Many banks offer financial planning tools to help you set and meet savings goals, pay off loans early with extra payments, and more. These tools vary, so be sure to check your bank for availability.

Financial Incentives

Some banks or credit unions offer you financial incentives for using online banking. The credit union I use offers a 3% APY on balances up to $15,000 and a $15 refund (per month) on any ATM withdrawal surcharges. To qualify for these financial bonuses, you need to have direct deposit, make a minimum of 10 debit card purchases per month, make at least 4 log ins to online banking, and sign-up to receive your monthly bank statement by email instead of the postal service.

Faster Account Balancing

With online banking, your account statement is typically available to view online or download on the first day of the month, so there's no waiting around three to five days after month-end for your statement to arrive. If you use personal finance apps like YNAB, Mvelopes, Mint, or others, you may be able to import your bank account information into that app, making balancing your accounts a snap. 
Disadvantages of online banking

 
Bank Relationship
A traditional bank provides the opportunity to develop a personal relationship with that bank. Getting to know the people at your local branch can be an advantage when you need a loan or a special service that is not normally offered to the public. A bank manager usually has some discretion in changing the terms of your account if your personal circumstances change. They can help you solve problems such as reversing an undeserved fee or service charge.
Your banker will also get to know you and your unique needs. If you have a business account, this personal relationship may help if you need capital to expand. It's easier to get the bank's support if there is someone who understands your business and can vouch for your operating plan.
Transaction Issues 
Sometimes a face-to-face meeting is required to complete complex transactions and address complicated problems. A traditional bank can host meetings and call in experts to solve a specific issue. In addition, international transactions may be more difficult (or impossible) with some direct banks.
If you regularly deposit cash, a traditional bank with a drive-through window may be more practical and efficient. Another potential drawback is that most direct banks do not have their own ATM machines. Unless an internet bank has a network alliance with another bank, you will be charged for your ATM use.

Service Issues
Some direct banks may not offer all the comprehensive financial services, such as insurance and brokerage accounts, that traditional banks offer. Traditional banks sometimes offer special services to loyal customers, such as preferred rates and investment advice at no extra charge.
In addition, routine services such as notarization and bank signature guarantee are not available online. These services are required for many financial and legal transactions.

Security 
Direct banks are subject to the same laws and regulations as traditional banks, and accounts are protected by the FDIC. Sophisticated encryption software is designed to protect your account information, but no system is perfect. Accounts may be subject to phishing, hacker attacks, malware and other unauthorized activity. However, one advantage of online banking is that you are likely to find a security breach more quickly, because your account balance is so accessible.
Most banks now make scanned copies of cleared checks available online, which helps to avoid and identify check fraud. It enables verification that all checks are signed by you and that dollar amounts have not been changed. The timely discovery of discrepancies can be reported and investigated immediately.

Identity theft is a significant concern, but some online banks take this risk more seriously than others. Before opening an online account, thoroughly investigate the bank's security policies and protections to ensure they meet your expectations.