More than 65% of consumers currently use online banking, a huge increase from the roughly 5% using it when we first wrote about this topic in 1999. Needless to say, both the technology and the way customers use it have changed significantly over the past decade. Back in 1999, online banking was a new phenomenon with only a few major players. Today, most banks offer online services, so it's time to revisit the online banking landscape.
- Where did this surge in demand come from? Initially, younger people — specifically Generation X (ages now range roughly from 30 to 50), led the way in online banking use. As this group entered the workforce, they brought their computer savvy with them into everyday life.
But more than anything, the increasing availability along with advances in technology played the major role. Broadband Internet connections are now the norm. Not surprisingly, people with "fast access" to the Internet are twice as likely as others to use online banking. And the explosion of smartphones (and now tablets) have made it easy to bank online anytime, anywhere.
- What is the big advantage of online banking? Convenience. It's easy to save time (and money) by banking online. Paying bills is simple and quick in most online banking systems. Automatic payment of recurring bills can be easily setup, and variable monthly bills can be paid with the click of a button. That beats manually writing checks and paying postage to send payments the old-fashioned way. It's also easy to transfer money from one account to another. This makes shopping nationally for the best rates on savings even more attractive because you can transfer your savings to your local account easily. Additionally, most online banks offer online features (such as account aggregation and rate alerts) to help you manage your assets more efficiently.
- What does online banking cost? The cost of online banking is typically the same (or cheaper) than traditional banking. Early on, online banking was considered an additional banking service, often costing between $7-$10 per month. But today, most banks offer online banking as a free service (although there may be a small monthly charge to download your data to personal software such as Quicken).
- What are the disadvantages of online banking? With online banking you lose the benefit of the "float" on your payments. Float is the time between when a check is written and when the money is deducted from your account. Long float times work to your advantage when you're paying, because your money can earn interest until the check clears. Online banking also presents a learning curve, which is largely dictated by your computer skills. It takes time to learn any new system, and it could take a little time before you're comfortable navigating your bank's website or app.
Finally, there is a security concern. While the likelihood of theft is small, it's a significant enough issue in many people's minds that we'll look into it in more detail next month. We'll also take a look at "Internet-only" banks that don't have brick-and-mortar branches.
If you haven't yet joined the ranks of those banking online, perhaps before we're done you'll find sufficient reasons to check out your bank's online capabilities.