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Pros and Cons of Virtual or Online Bank Accounts

Updated on July 31, 2010

Banking has definitely changed over the years and sometimes I wonder whether it is really for the better or not. Online banking is nice in some regards, but there are also some drawbacks. Most brick and mortar banks do offer online banking to some extent for their customers, but did you know there are banks that are strictly for online banking? You do everything online or possibly over the phone. There is no bank to walk into and no person to talk with face to face. It sometimes makes me wonder if it is really real. It is real and virtual banking has become extremely common.

One of the commonly believed benefits of having a virtual bank account is higher interest rates. When we first opened our online savings account the interest rate was several points higher than anywhere else. Over the years though, the interest rate has dropped so much that right now it is barely higher than the local banks. It might be different for you but the difference in interest rates between a local bank and an online bank should definitely be considered before making your decision.

One of the things I like about our online savings account is that the money is not readily accessible. This can be a drawback however, and has been for us at times. We keep most of our emergency fund in an online bank account and making transfers between that account and our local bank takes a few days. If we need money immediately we have to use our credit card and then transfer money to pay the bill later. It works for us, but it might not work for you. Normally I find it to be a benefit that our emergency fund is not easily spendable. It makes us think very hard about actually using it.

Many people really like dealing face to face with people when it comes to their money. Having worked in a bank for years I realize that the relationship between people and their money is a very touchy subject. Many people don't want to get on the computer if there is a problem; they want to talk to a live person. I have found the customer service department of our online bank to be extremely helpful and have had no problems.

If you have all of your bank accounts at an online bank then it will be easiest if you have your regular deposits done electronically. You will need to be very comfortable using an ATM to make withdrawals as well as deposits. Make sure there are ATMs located near you and that there is no charge. You should still be able to get checks with an online checking account, but I think most people use a debit card with these accounts. Paying bills online will make things much easier.

Online banks are typically FDIC insured but check to make sure before you open an account. The same limits would apply to an online account just like they do to a brick and mortar account. Many online accounts have lower fees or no fees at all compared to a local bank. Because they don't have the upkeep of bank buildings and lots of personnel they can afford to waive these fees. If you struggle to find a local bank that has no monthly service charges, you should definitely check out an online bank to avoid these high fees.

What I have found to work well for us is to have a local checking and savings account as well as a virtual account. I get the benefits of online banking while still having a local bank for most of my money transactions. The cons of online banking typically don't bother me, but each person has to decide for themselves what will work best for them. This information should help you make your decision.


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    • Man from Modesto profile image

      Man from Modesto 

      7 years ago from Kiev, Ukraine (formerly Modesto, California)

      Nice hub.

    • profile image

      frosty #1 

      8 years ago

      We have used internet banking for years and i find it very good for paying nills if we are going away for an extended time

    • frogyfish profile image


      9 years ago from Central United States of America

      Thanks for sharing your experience and opinion about online banking - pro and con. I have considered doing this locally because of the seeming advertised advantages, but am of course still cautious. Your hub helps weigh the whole decision and I appreciate your expressing your ideas and actions for us here.

    • WillGrander profile image


      9 years ago from New York

      Good hub - I like online banking for the higher interest rate (all rates have fallen, so everything is miniscule, online banks are just less miniscule...) I agree though, someone who is more active with their cash can make better investments with it to earn more.

    • Hello, hello, profile image

      Hello, hello, 

      9 years ago from London, UK

      Thank you for advising on the pros and cons which is very helpful

    • dallas93444 profile image

      Dallas W Thompson 

      9 years ago from Bakersfield, CA

      As you noted, there are pros and cons to online banks. On line (Distance Education) too has its advantages (anytime, anywhere) and disadvantages... Perhaps the wisdom is to match your needs to what is available... Thanks for the great hub!

    • profile image


      9 years ago

      Banks these days offer interest rates that are so low that their rate could barely keep up with inflation. For example in 2008, the inflation rate of the United States was 3.8%. That means that the consumer prices of the same consumer items has gone up 3.8% from the year below. If your money is sitting in a savings account that earns less than 3.8%, that means that your money has lost value. It could no longer buy the same amount of things that it used to. (There used to be a time when we can buy a loaf of bread for ten cents, you know).

      For long-term saving (such as for retirement), one needs to be thinking investments such as 401K, IRA, or brokerage accounts. They all work using the stock market instead of bank interest. The money is in stocks and bonds.

      Anyways, that is just my two cents. I am not a financial professional. This is just opinion and not financial advice.

    • Dim Flaxenwick profile image

      Dim Flaxenwick 

      9 years ago from Great Britain

      Very informative. Thank you Jennifer


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