Now that the world has been doing more and more of its business online, people have started turning to financial institutions which offer their services purely online as well. Many of these institutions, such as ING Direct, or HSBC Direct offer great rates on accounts which are set up online. Because these institutions offer such great rates on their savings and checking accounts, it makes sense to open accounts with them in order to take advantage of their rates. You can always link these online bank accounts to your current external account which belongs to a brick and mortar bank, if this helps you feel more secure about the money you'll be placing in the online only account.
One of the major advantages of internet banking is the fact that it is cost effective. Many real world banks charge smaller fees if you use their online banking services instead of them sending you statements in the mail. Since you'll be doing all of your banking via the web and in the comfort of your home, you'll also save money on gas. In additon to that, since these banks are able to offer their products solely online, they can offer better service as they don't have overhead expenses needed to keep in operation, such as tellers. Because these online financial institutions have less of an overhead than real banks, they are able to offer much greater deals when it comes to opening accounts with them. Online banking accounts have the highest Annual Percentage Yield of any banking account available. In addition to the high APY offered by these banks, many of them also have no fees associated with the accounts you open with them. This keeps more of your money in your account and encourages you to do business with your account more frequently. Real world banks are at a disadvantage here because of the many fees they charge for switching money from account to account and withdrawing money from ATMs.
Another great advantage of online banking is if you have both an online checking and online savings account through the same financial institution, the transactions between these accounts is instantaneous. This fact has made it so that many people keep most of their money in their high yield savings account and transfer what they need out instantly, so they are constantly making the most from their money by keeping it in the higher yield account.
If security is what's stopping you from opening an online banking account with any of the financial providers described above, you should consider that many of these FDIC insured institutions take the same precautions any standard bank would. Any changes that are made to your account must be verified personally by you, either through the mail or on the phone. You'll need to provide security information which only you know the answer to and you'll have to verify any transactions the bank makes on your behalf in order to insure you're who you say you are.
Originally posted 2008-09-30 16:51:26.