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How Online Banks Work

        Money | Online Banking

Benefits of Online Banking
Online banks can charge less for services due to their lack of overhead.
Online banks can charge less for services due to their lack of overhead.
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The biggest benefit of choosing an online bank over a more traditional bank with physical branch locations comes down to saving money. It's common for a traditional bank to charge for checking accounts, ordering physical checks, or for failure to maintain a minimum account balance. It's also common for banks to charge customers a fee for using an ATM at another bank. In contrast, most online banks don't charge any fees at all.

Online banks are able to charge less for banking services because they have fewer expenses to cover. Think of the costs associated with running a large chain of bank branches: the cost of buying or renting the land, constructing the building, employee salaries, utilities, the list goes on. Because most online banking services are provided by a roomful of servers and an outsourced customer service staff, there is much less overhead [source: Roberts]. And some of those savings can be passed along to customers.

For example, most online checking accounts are free, with free checks and no minimum account balance. Several online banks offer 100 percent free ATM services at any ATM in America. Any fees that you are charged by another bank are reimbursed with your monthly bank statement.

Another benefit of online banking is higher interest rates on checking accounts, savings accounts and investment products like CDs and money market accounts [source: Bomberger]. In this case, the differences can be significant. As mentioned on the previous page, the rate for a $1 minimum balance online checking account is eight times higher than a traditional checking account with a $500 minimum balance.