Internet is a source of cheap banking, cheap music and cheap movies other than being a great platform for wasting hours of time. Internet banks these days are offering more for less to people who are brave enough to give up the comfort of banking in a physical branch in their neighbourhoods. In this article, we intend to discuss whether an online bank is the best choice for us and the reasons behind this.
Internet banks offer some of the lowest fees in banking. This can be done as online banks do not have the same level of costs as the traditional banks. If one maintains an account with a bank with a countrywide network of branches, his/her fees are paying for the cost of staffing across the nation, advertising and other fees. With an internet bank, most of these overheads are non-existent - thereby allowing the reduction in fees.
As internet accounts often cost an individual nothing in fees, s/he can open as many accounts as s/he needs. Although this might sound eccentric, it's a powerful tool for personal finance. One can have a savings account for a car, his/her future house and his/her retirement, automatically allocating the percentage s/he wants to go into. Splitting one's savings according to financial goals and being able to easily mark the progress is more satisfying and may increase his/her motivation to stick to his/her financial plan. With a traditional bank, s/he usually loses money by opening extra accounts as each one has fees, minimum balances and so on. This forces one to group his/her savings and try to mentally tally how much is being allotted to each goal - not nearly as simple or as satisfying.
Aside from fees, the limited costs of internet banks also allow them to pay out better interest rates. Whereas most traditional banks offer less than half a per cent on a designated savings account, internet banks offer significantly more for savings and pay some interests for a regular account checking. On the flipside, internet banks also tend to have lower interest rates on small loans and are steadily expanding the credit vehicles they offer. One can get a credit card, line of credit, car loan and even a mortgage through his/her internet bank at decent rates, if his/her credit rating is solid.
One of the biggest attractions of internet banks is the level of online accessibility. Many traditional banks underestimated the demand for online services before, but now almost every bank has some form of online banking. Internet banks, by their nature, have above average online services. One can check his/her balance daily, hourly, or every minute should s/he chooses. S/he can set up online bill payments, apply for loans, buy fixed-term investments and handle transfers between accounts. Simply put, s/he can do everything s/he could normally do at a branch bank from the comfort of his/her own home.
Before we get too excited about internet banks, there are few drawbacks that should not be ignored. The most common complaint about internet banking is that making a deposit can be slow. If an individual is not on a direct deposit payroll, the chances are high that s/he will have to mail his/her cheque or use an automated teller machine (ATM). This means his/her funds will take time to make it into his/her accounts, and even then, they may be subject to a hold. Generally speaking, waiting for a week or two is not the end of the world — provided that one is not living paycheck to paycheck. There are other ways to get around this problem -- such as opening an account with another bank just for transferring deposits, but it remains a sticking point for many people used to having immediate access to their paychecks.
Another drawback is that you cannot walk in for a face-to-face meeting with a loan disbursement officer. Although the loan process has been highly automated at traditional banks as well, one's personal relationship with the officer can make a difference. With internet banks, one's credit is either good enough or it isn't — there is no allowance for a nice smile.
It takes time for people to get comfortable with new innovations, and this has stood true for internet banks. These banks offer a mix that makes them very attractive to people looking to save on fees, as well as for those who want to save money. Whereas the lack of a physical location and face-to-face staff might turn off the older generations, the younger, tech-savvy generation can directly benefit from banks that don't have the overhead costs that traditional banking entails. Young or old, if one can reconcile himself/herself with the drawbacks, an online bank is a great way to sock away cash and handle his/her daily banking needs.
Sk. Shamim Iqbal, an MBA in Banking from the University of Dhaka, is now serving the R&D Division of a leading commercial bank.
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