Personal Finance
September 8, 2017
By Jack Ryder

Pros and Cons of Virtual Banking

Simple. Thrifty. Living.

Savings accounts have evolved from the days of stashing cash under the mattress. Most American adults use at least one bank account, whether for saving money securely or for completing financial transactions such as paying bills. Even conventional banks have some online presence, so most consumers participate in at least some form of online banking. However, there is a difference between using the online services of a brick-and-mortar bank and making the leap to virtual banking, where the bank exists only in cyberspace. The pros and cons of virtual banking are explored below.

With the commercialization of the internet came internet-only banks that have no network of branch offices. These “virtual” or “direct” banks offer financial services remotely via online banking and telephone banking. Often services are performed using mail, email and mobile as well. Virtual banking is also known as cyberbanking, e-banking, home banking or online banking.

Virtual banks hold several advantages over conventional banks, including:

  • Higher interest rates and lower mortgage and loan rates: Internet-only banks do not have the same level of expenses for staffing and space as conventional banks with physical locations. These savings in infrastructure and personnel costs can be passed onto the consumers in the forms of higher interest rates on savings or checking accounts and lower mortgage or loan rates. Some virtual banks are even able to offer no-fee, interest-bearing accounts without minimum balance requirements.
  • Completely free checking: Nearly all internet-only banks provide checking accounts at no cost. Though most brick-and-mortar banks also offer no-fee checking, conditions usually are attached, such as the requirement of direct deposit.
  • Convenience and mobility: Virtual banks do not close. Your account is accessible around the clock.
  • More advanced web technology: Virtual banks usually employ more advanced web features and online tools for customers than traditional banks. As a result, they usually come with a more robust, comprehensive set of features.
  • Environmentally friendly: There will be no paper statements, no errands driving to the bank and no additional space needs for staffing or housing of operations.

Virtual banking certainly isn’t right for everyone.

  • Slower deposits: Because there is no physical branch at which to make a deposit, adding money to an account can be delayed sometimes if a check has to be mailed. Advances in technology though are easing these delays, since most direct banks now allow remote deposits of checks through mobile phones. Cash, of course, still can present challenges unless the virtual bank partners with a network of banks or credit unions to allow members’ deposits.
  • Website outages: Though increasingly uncommon, websites do go down at times, whether for planned maintenance or an unplanned glitch. If that happens, there is no physical place to go as a backup.
  • Lack of relationship: Some transactions are easier when conducted face-to-face and more complicated issues can benefit from a personal interaction that is lacking in virtual banking.

When considering a financial institution to work with, it is important to first consider several factors. For instance, a person’s individual comfort and skill level with computer or mobile technology can help determine whether virtual banks are a good option. Likewise, their preferences when it relates to human interaction in conducting transactions is important, as is a bank’s financial product offerings and ATM availability.

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