How Does Internet Banking Work?

By Lashon Fryer

The Bandwagon

The Internet has taken on a life of its own. In an effort, to ensure they are not left out of the activity, conglomerates, retailers and even banks are securing their seats on the bandwagon. Internet banking allows its customers nearly every luxury of a brick-and-mortar bank. Of course, the intimacy of face-to-face contact is nonexistent. However, Internet banks compensate their customers for the sacrifice by offering other perks.

How It Works

Internet banks have to make themselves attractive to potential customers. They do this by offering high-yield checking accounts. Internet banks have the comfort of doing so because they do not have the same overhead cost as normal banks. Internet banks are much cheaper to operate than traditional banks, so Internet banks can pass the savings on to their customers. Once they have secured your business, Internet banks offer you other services. You will be able to complete your checking, savings, credit cards, mortgages, investments, bill payments and much more from the comfort of your own living room.

The Forfeit

Everything is done online, meaning you have to complete all your transactions over the phone, through the mail or from an automated teller machine, or ATM. To obtain cash, you will be subjected to fees if the ATM being used is not part of your home bank. So if you need cash often, you may want to ensure you are compensated for the fees associated with frequent ATM use. Some Internet banks offer cash rebates to customers who make frequent trips to the ATM. Another downside, if you need to deposit a check, often you have to mail it to your bank using snail mail; you then have to wait for the check to clear. At a traditional bank, the waiting period would not be that long. Also, in some cases, the postage cost is the responsibility of the customer.

History of Internet Banking

ING Direct opened its doors on the information highway in 1997. The only product it offered at that time was an investment savings account. It has since expanded and offers quite a few services. Other Internet banks that are growing in popularity are Redneck Bank and Everbank. (See "Resources.")

Do Your Homework

If you decide that Internet banking is the right choice for you, be sure that you check that the bank is federally insured. Also, before choosing a specific Internet bank, you may want to do a little homework in advance. Read their "About Us" section and any other literature associated with the bank that describes the financial institution. Verify that the bank has the "FDIC Insured" logo somewhere on the website. In addition, if you would like to check the bank's legitimacy and insurance status, you can do so on the Bank Find website. (See "Resources.")