Do Your Banking Online? Beware These Pitfalls

A 2022 survey by J.D. Power found that 27% of Americans use an online-only bank. And there's a good reason for that.

Because online banks don't tend to have the same overhead as physical banks, they can often offer more competitive rates for products like savings accounts and CDs. But while you may be inclined to do your banking online, there are certain pitfalls you might encounter along the way. Here are a few to be aware of.

1. Depositing cash might be a struggle

Most online banks allow you to deposit checks via an app by taking a picture and submitting some information electronically. But when you're given a pile of cash you want to deposit, things get trickier. You can't just take a picture of various bills and expect your online bank to credit your account for the total.

Now, this doesn't mean you don't have options for depositing cash. But usually, what you'll need to do is link your online bank account to a physical bank, deposit the money at your physical bank, and then do a transfer.

This process can be time-consuming, though, because you may have to wait a few days for your initial deposit at your physical bank to clear before you then do your online transfer. You might then have to wait even longer for that second transaction to clear.

2. An outage can leave you in the lurch

If you have a physical bank whose website or app goes down for a period, you may be able to visit a local branch and get access to your money, or to whatever services you need. If your online bank has a similar outage, you may have no choice but to sit tight until it resolves.

You may, in some cases, be able to get a customer service person to assist you. But they, too, may be limited in how helpful they can be during an outage.

3. You may not have many (or any) borrowing options

Many physical banks offer more than just checking accounts, savings accounts, and CDs. You may be able to apply for a personal loan or line of credit through your bank. But while some online banks offer a range of borrowing products, many do not. And while you could always apply for a loan elsewhere when you need one, you might prefer to do so at a bank where you're already an established customer.

4. You might pay a fee every time you need money

Just as depositing cash can be difficult when you use an online bank, so too could accessing cash be a challenge. If your bank doesn't have branches, it probably doesn't have ATMs. So you may end up incurring fees for cash withdrawals.

That said, some online banks offer ATM fee reimbursement to some degree. Do some digging to see if there's a no-cost option for taking out money when you need it.

Opting for an online bank could be a good move if you're looking to score a favorable interest rate on your savings. But it could pay to maintain a separate account at a brick-and-mortar establishment. That way, you have plenty of options for accessing and depositing cash, and you may have access to more services, whether it's borrowing money or getting important financial documents notarized.