3 Pitfalls of Using an Online Bank


When it comes to opening a checking or savings account, you have choices. You can use a brick-and-mortar bank, or you can use an online bank.

Online banks definitely have their perks. For one thing, they don’t have the same amount of overhead as physical banks, so they can often provide better rates on savings accounts and certificates of deposit (CDs). And they tend to charge lower fees for the same reason. Plus, many online banks provide great customer service, partly to compensate for not giving you the same personal touch as physical banks.

But if you’re thinking about opening an online bank account, you may run into your share of hiccups. Here are three drawbacks you should know about.

1. Technology issues could keep you from accessing your money

Websites crash all the time. But if your banking website has an outage at a time when you need to make a transaction, you won’t have the option to simply walk into a branch and do your banking in person instead. Rather, you’ll be at the mercy of the technology people who are tasked with resolving outages and getting your bank’s site up and running again.

2. You can’t make cash deposits

You can go into a physical bank with an envelope of cash and deposit that money into your account. Not so with an online bank. And that could be a problem if you tend to get your hands on a lot of cash.

Say you have a side hustle like babysitting or dog-walking where you’re frequently given cash payments by your clients. Or say you work as a server at a restaurant and get the bulk of your wages in cash tips. In those cases, an online bank probably won’t serve you very well.

3. You can’t use the peripheral services you might want

When you have an account at a physical bank, you’ll often get access to a variety of services that may come in handy. For example, brick-and-mortar banks often have a notary whose services are free of charge to account holders. Online banks don’t give you those side benefits, and while you may not need those services regularly, they could come in handy on occasion.

Is an online bank right for you?

While there are plenty of good reasons for using an online bank, you might encounter some pitfalls if you only open an account at an online bank and not a physical bank as well. You may want to consider opening an online savings account or CD to take advantage of the better rates online banks tend to have. But you may want to also maintain a separate checking account at a physical bank in your neighborhood (or other convenient location) that you can link your online account to. Doing so will give you the best of both worlds and help solve for the above limitations.

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