What Is Online Banking?

What Is Online Banking?

Online banking allows you to conduct a wide range of banking activities from your phone or computer. That gives you the ability to manage your accounts on your own time, whether you're at home or on the go.

Your bank or credit union may offer this benefit through a secure website or app you can access even outside of regular business hours. More than half of bank consumers use mobile apps as their top option for managing their bank account, according to the American Bankers Association survey.

Learn more: What's the Best Type of Bank Account to Start With?

How Does Online Banking Work?

Online banking gives you access to your bank account information and features online. Chances are your financial institution has a secure website or app that will unlock your online banking options. Each one is different, but you can generally expect the following features:

• An overview of all the accounts you have with that financial institution
• A variety of banking options (we'll unpack these below)
• A summary of credit card rewards and redemption options, if applicable

Some apps will also summarize your spending trends and provide personal finance resources. That can include articles, videos and investment insights.

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What Can You Do With Online Banking?

In most cases, online banking apps and websites allow you to do many of the same things you'd do at a physical branch. Here's a rundown of some of the most common transactions you can complete on your phone or computer.

Pay Bills

Your bank or credit union likely offers online bill pay. This feature allows you to:

• Add payees and schedule payments
• Make one-time or recurring bill payments
• Set reminders for upcoming due dates

This can take some of the legwork out of paying your bills and help avoid missed payments, especially if you schedule your payments ahead of time. That's important since your payment history makes up 35% of your FICO^® Score^Θ.

Make a Deposit

You don't need to visit your nearest bank or ATM to deposit a check into your checking or savings account. With online banking, you can do this from anywhere in just a few steps:

1. Open your mobile banking app and find the option to deposit checks.
2. Choose the account you want the funds to go into.
3. Enter the check amount.
4. Sign the back of the check where indicated to endorse it. Some banks may ask you to write additional information on the back of the check as well, so be sure to check requirements.
5. Take photos of the front and back of the check when prompted.
6. Review and submit the deposit.
7. Hang on to the check until the mobile deposit clears your account.

Manage Your Accounts and Check Your Balances

Online banking allows you to quickly pull up your account balances and activity, including pending transactions. That means you'll know exactly how much you have in your account, which is an essential part of budgeting. If you want to look further back into your spending history, you should have the option to download past account statements.

Tracking your income and expenses can help you:

• Eliminate or reduce wasteful spending
• Spot fraudulent transactions that may be a sign of identity theft
• Identify honest mistakes, like a merchant accidentally charging you twice for a single transaction

Tip: Your present balance tells you how much money is in your account at any given moment. Your available balance considers pending transactions and reflects how much cash you can actually access.

Make Transfers

You may have multiple accounts with your bank or credit union. Online banking apps make it easy to transfer money between your accounts as needed. For example, you might want to move funds from your savings account to your checking account to cover an unexpected bill.

You can also set up automatic monthly transfers to your savings account to help grow your emergency fund over time. A high-yield savings account is appealing because it can help your money work a little harder for you.

Order Checks

If you're running low on checks, you can usually browse check designs and order new checkbooks through your bank's website or mobile app. The cost will likely be deducted from your checking account.

Other Services

Every banking app and website is different, but yours might also allow you to:

• Initiate bank-to-bank transfers through Zelle
• Locate nearby ATMs
• Order a new debit or credit card
• Report a suspicious transaction
• Lock or unlock a credit card
• Order a stop payment
• Book travel, dining or experiences with a rewards credit card
• Open a new account
• Contact customer support

Learn more: How Many Bank Accounts Should I Have?

Is Online Banking Safe?

In general, online banking is considered safe. Whether you're working with an online-only bank or a traditional bank, the Federal Deposit Insurance Corp. (FDIC) typically insures your deposits for up to $250,000 per depositor, insured bank and account ownership category. The National Credit Union Administration offers the same level of protection for credit union accounts.

Online banking also comes with heightened security measures to protect your financial data and personal information. Even so, it's smart to set up multifactor authentication, account alerts and fraud monitoring.

Be aware: Create strong, unique passwords and avoid public Wi-Fi networks when doing your online banking to avoid breaches in data privacy while you bank.

Pros and Cons of Online Banking

Online banking has pros and cons that are worth considering. Below are some important things to have on your radar.

Learn more: Ways to Get the Most Out of Your Bank Account

How to Open a Bank Account Online

Opening a bank account online is usually pretty straightforward. Here's a step-by-step guide to get you started:

1. Decide which type of financial institution is right for you. If you prefer a member-owned, not-for-profit organization, credit unions might be appealing—and they might offer better interest rates and lower fees than traditional banks. Alternatively, you may be drawn to a large traditional bank or online-only bank. Compare your options and consider what you're looking for when it comes to online banking.
2. Choose the account you want to open. That may be a new checking account, savings account or certificate of deposit (CD). From there, you can shop around for the best rates, terms and features.
3. Get your documents together. This includes your contact information, valid government-issued photo ID, and Social Security number or individual taxpayer identification number. You may also have to provide a second form of ID, like a utility bill in your name or a Social Security card.
4. Make an opening deposit. After your application is approved, you can deposit funds into your new account and begin using it.

Be aware: Some financial institutions require a minimum opening deposit. For checking and savings accounts, it often ranges from $25 to $100, but it may be higher when opening a CD or money market account.

Frequently Asked Questions

The Bottom Line

Online banking has come a long way over the years. Whether you're depositing checks, sending money to a friend or simply checking your account balance, chances are you can do it right from your phone. But online banking apps and websites can vary greatly when it comes to available features and user-friendliness. This is why it's important to research the best bank account and financial institution for you.