These days, you probably turn to the internet for news, entertainment and shopping … so why not your checking account?
Online checking accounts make it easier than ever to manage your money without ever having to step foot in a bank branch. Plus, they often come with lower fees and higher interest rates than traditional checking accounts. Here’s what you should know if you’re considering opening one.
What is an online checking account?
An online checking account is just that — a checking account that you can open and manage via the web without having to visit a local branch. These accounts are offered by traditional banks, credit unions, and online-only banks.
You might be wondering why anyone would want a bank account that exists only online. After all, doesn’t that make it harder to manage your money and keep it safe from hackers?
Quite the opposite, actually. Online checking accounts come with several benefits:
Access anywhere: You can view your balance, make deposits, pay bills, and more, as long as you have a computer and internet access.
Bank from your phone: Many banks that offer online checking accounts also have a mobile app, allowing you to do all the above tasks from your phone or tablet too. Most allow for mobile check deposit, where you can deposit a check to your account by snapping a picture of it.
Electronic transfers: Online checking accounts allow for electronic bill payment and transfers between accounts and even between different banks, eliminating the need for writing checks or visiting a physical location.
ATM networks: Worried about how you’ll pull out cash? You’ll still need to visit an ATM for this task, but you aren’t limited to your bank’s locations. Most providers of online bank accounts are part of national ATM networks, such as Allpoint or Co-op. These allow checking account customers to use any ATM in the network without incurring a fee.
Lower fees: Because online accounts don’t come with the same administrative overhead costs as traditional accounts, those savings are often passed on to account holders in the form of lower (or no) fees. In some cases, the interest rates may be higher too.
Safety: A common misconception about online banking is that it’s not as safe as banking in person. However, an online checking account comes with the same — if not more — protections thanks to technology. Of course, it also requires some work on your part to keep your online banking information safe.
Security measures and fraud protection
Speaking of safety, it’s important not to downplay the risks that come with managing your financial life online. However, the best online checking accounts should have robust security measures in place. And there are things you can personally do to keep your banking information out of the hands of identity thieves.
For one, your bank's website and mobile apps should use strong encryption to protect your personal and financial information. Many banks also employ two-factor authentication, which requires you to verify your identity using two separate methods before you can access your account. For example, after entering your password, you might have to enter a code sent to your phone.
Another security measure to look out for is automatic logout. If you're inactive on your online account or mobile app for a certain period, the bank should automatically log you out of your account. This helps to protect your information if you accidentally leave your device unattended.
Many banks also offer customizable alerts for various account activities. You might set up alerts for things like large transactions, login attempts from unknown devices, or when your balance falls below a certain level. But even if you don’t set up personalized alerts (though it’s really a good idea), your financial institution should be regularly monitoring your accounts for unusual activity. If they notice anything suspicious, they may contact you to confirm the activity or block the transaction.
Additionally, you can take these steps to enhance your security:
Use a strong, unique password for your banking accounts.
Regularly update your devices and banking apps to ensure you have the latest security patches.
Be aware of phishing attempts and never click on suspicious links or provide personal information in response to unsolicited messages.
Regularly review your account statements and transactions for any suspicious activity.
Use secure networks when accessing your banking accounts online.
Is an online checking account right for you?
Despite the many benefits, an online account isn’t for everyone. Before opening an online checking account, it’s important to take stock of your biggest financial goals and priorities.
For example, if you’re looking for a high-yield checking account with no monthly fee and an expansive ATM network, an online account is probably a good choice. On the other hand, if you handle a lot of daily transactions and often need to visit your local bank branch to get assistance from a teller, an online checking account probably won’t meet your needs.
How to find the best online checking account
When it comes to opening an online checking account, the choices can seem overwhelming. There are more than 350 digital banks alone. Plus, many brick-and-mortar banks and credit unions offer online accounts. So how do you go about selecting the right one? Here are some important factors to consider:
Fees and minimum balance requirements
The fees associated with an online checking account are one of the most important factors to consider. Fees can hurt your bottom line and wipe out any interest earnings or rewards your account offers.
For example, some financial institutions charge monthly maintenance fees. These fees are meant to cover the administrative costs of servicing your account. But they can often be waived by meeting certain requirements such as maintaining a minimum balance or signing up for direct deposit.
It’s also common for banks to charge a non-sufficient funds (NSF) fee if your account doesn’t have enough money in it to cover a transaction. The average NSF fee currently stands at $34. However, some banks have committed to eliminating these fees, including Bank of America, Capital One, and Wells Fargo.
You may also be charged fees for using out-of-network ATMs, receiving paper statements, and more. So before applying for an online checking account, be sure you understand all of the fees and how to avoid them or have them waived. Ideally, you will choose an account that doesn’t charge these types of fees at all (yes, they exist).
Checking account rates are generally lower than savings account rates. And the primary purpose of a checking account is to manage daily transactions, not grow long-term savings. That said, it can be nice to earn a little extra return on the money you have sitting in your account.
Currently, the average checking account rate is just 0.07%. However, some higher-yield online checking accounts offer rates near 1%.
Want the best bang for your savings buck? Consider a high-yield savings account — you could earn over 5%.
If you use cash frequently, you’ll definitely want to consider the bank's ATM network. For one, it’s important that there are many ATMs available across the country in case you’re traveling. Again, banks and credit unions that provide online checking accounts often belong to surcharge-free ATM networks that allow account holders to access their funds from many places, not just where the bank is located. Additionally, some online banks reimburse any fees incurred for using out-of-network ATMs.
Digital banking tools
Since you're considering an online checking account, the bank's digital features will be even more important, including the usability of their mobile app and online banking platform. Find out if the account comes with features such as mobile check deposit, bill pay, money transfer options, real-time alerts, etc. — all of which will help you manage your account from home (or anywhere else).
Customer service and reputation
Since online banks don’t have physical branches, look for a bank with strong customer service that can be reached through various channels, such as phone, email, live chat, and even social media. Check if they offer 24/7 support, and through which channels.
You’ll also want to find out whether the bank is reputable in general. Sites such as the Better Business Bureau and Trust Pilot can give you an idea of what other customers’ experiences have been. Comb through reviews and see if you notice any themes regarding account issues.
You’ll also want to double-check that the institution is insured. For banks, deposit insurance is provided by the Federal Deposit Insurance Corporation (FDIC). For credit unions, it’s the National Credit Union Administration (NCUA). These entities ensure your money is protected in case the institution fails, up to a limit of $250,000 per depositor.
How to open and manage an online checking account
Once you’re ready to open a checking account online, the process is pretty straightforward.
Start by gathering key documents. When filling out the application, you’ll need to provide some documentation. That may include a copy of your driver’s license, Social Security card, or passport to verify your identity. You may also need to provide proof of address in the form of a utility bill or bank statement. Having these items on hand before you get started will help streamline the process.
Fill out an online application. This usually takes just a few minutes. Answer the questions in the application and upload any requested documents. Double-check that all your information is correct before submitting, as errors can delay the process.
Fund your account. There may be a small minimum opening deposit required. The easiest way to fund the new account is by transferring the money from another account, but you may also be able to write a check.
Set up online banking features and tools. Once your account is officially open, you can sign up for online banking, get any direct deposit in place, and activate your debit card.
Monitor your account security. Your job isn’t done once the account is open. Make sure you stay vigilant when it comes to protecting your account. Regularly check on your transaction activity, set up bank alerts, and periodically change your password.