In 2000, the Pew Research Center found that only 17 percent of Internet users had done any banking online. Fast forward 10 years and that number jumps to 58 percent. Like other activities that were once considered on the fringe of good sense--online dating, anyone?--online banking has hit the mainstream.
Despite its widespread appeal, many are still hesitant to go online to bank. If you have been contemplating an online savings account but don't know where to start, you've come to the right place. Here are answers to some of the most commonly asked questions about online banking:
How do you bank online?
There are varying degrees of online banking. If you want to put your toes in the water, your current bank or credit union can likely set you up with online account access. Create a username and password and you instantly have access to your account 24/7. Most accounts will let you review balances, transfer money and review statements.
To take your online banking to the next level, you can pay your bills online. Again, you can generally sign up for this service through your existing bank or credit union. With online bill pay services, you enter account information and then schedule payments. Bills are paid either electronically or your bank might arrange for a paper check to be generated and mailed if the biller does not accept electronic payments. Generally, your account is debited on the payment date.
Finally, for those who want to truly go paperless, there are exclusive online banks with no brick-and-mortar branches. ING Direct pioneered the online bank model in 2000, while Ally Financial is the most recent addition to the market. Online banks provide users with a debit card to access funds, and the online savings account may be linked to an existing brick-and-mortar bank account to allow money to be easily transferred. Because they have no physical locations, online banks have low overhead and usually provide better savings account rates.
Is online banking safe?
Of all the reasons people decide not to bank online, banking safety likely tops the list. After all, the world is full of hackers and high-school students with too much time on their hands, right? Well, there is no doubt there are hackers out there, but online banks go to great lengths to keep customer information safe. Most use high-end encryption, 'smart passwords' and other security measures to keep would-be criminals at bay.
A bigger concern may be whether the institution itself is financially stable. Legitimate banks are insured by the Federal Deposit Insurance Corporation (FDIC). Before opening a savings or checking account, check to see whether the bank is a member. In the unlikely event the bank fails, the FDIC will cover up to $250,000 of the money you've deposited…more if you have both individual and joint accounts.
Finally, don't forget your own part in keeping your information secure. Whether you access your online bank from a home computer, a laptop, or a smartphone, make sure you're on a secure connection (https://) and that your firewall and virus protection settings are active and up to date. Be especially cautious about public computers and Wi-Fi connections as they can easily be compromised.
How do I open an online savings or checking account?
To open an online savings account or checking account with a U.S. bank, you must be 18 years old and have a valid U.S. Social Security number. The most convenient way to open an account is online. A major bank will allow you to create an account in minutes through its website.
How do I make deposits and get cash from an online bank?
You can expect to receive a debit card that will give you access to your account balance. Ally Financial allows members to use ATMs nationwide without charging a fee. ING Direct is part of the Allpoint Network, which provides 35,000 free ATMs across the country.
Deposits can be made in three ways:
- Direct deposit
- Online transfers
Online savings accounts and checking accounts can be linked to your existing brick-and-mortar bank accounts. Online banks generally allow free transfers between accounts, which provides another avenue to access your money.
Why should I open an online account when there is a bank down the street?
Quite simply: because online banks commonly offer the best savings account rates. Online banks don't have branches to maintain or tellers to pay, so their operating costs are less than traditional banks. The savings are often passed on to account holders in the form of higher interest rates.
In addition to greater earning potential, online banks offer convenience that is appealing. Anyone who has moved can attest to the fact that switching banks can be a hassle. Fortunately, with online banks, your account is portable across the country. In addition, both online savings accounts and checking accounts are often free to open and free to maintain.