A Brief Guide to Internet Bank Accounts

The rise of the internet made radically new ways of doing business possible. One area where this was most keenly felt is the banking sector. With the internet came bank accounts linked to the web that allowed users to interact with their account, and do basic transactions, while online. Some financial service providers went one step further and started creating ‘virtual banks’; that is banks without physical ‘bricks and mortar’ branches. The accounts offered by such internet banks are ‘Internet Bank Accounts’ in the ‘pure’ sense of the word as they are not merely traditional accounts (i.e. accounts held at a physical bank branch) linked to the internet, they ‘exist’ only on the internet.

A large part of the motivation for the setting up of internet banks was cost. It was felt that the lack of physical infrastructure (in the form of a branch network) would lead to significant savings, some of which could be passed on to customers in the form of better interest rates. It is still often the case that ‘internet only’ accounts offer some of the best rates on the market. It will however, as with anything else, be worth your while to do a bit of research in order to find the best deal for you in your specific circumstances.

The advantages of Internet Bank Accounts are:

• Better in interest rates (in many cases)
• The ability to do your banking at any time
• There is no need to travel long distances (if you live in a rural area for example) in order to visit a bank branch.

The main drawback of internet accounts is linked to one of its strengths namely the lack of branches (which can lead to cost savings and better interest rates). If something goes wrong with your account there is not a branch that you could go and visit to sort out the problem. You will instead have to get on the phone to discuss the issue with someone in a call centre. This can potentially be a very frustrating experience.

Some of the things to consider before choosing an internet account are the following:

• How easy is it to use? If you open an internet account you will spend a significant amount of time on the web managing your account. If the site is slow and complicated it will obviously make your life quite difficult. It is therefore always a good idea to get a few recommendations on ease of use from a few (non techie!) friends before making a final decision.
• What is the fee structure? Some accounts are quite expensive to manage, to the point of charging per transaction for basic things like transfers or setting up bill payments. It is therefore a very good idea to read the ‘fine print’ about charges before signing up.
• What restrictions are there on the account? Online banks operate in an environment where there are significant security risks. They protect themselves by making use of encryption but also by sometimes placing limits on account activity (e.g. the number of transfers allowed per day, the amount you can transfer per day etc.). It could be that you are very comfortable with this kind of arrangement. However some people might find it too restrictive.
• How much interest will I earn? One of the main reasons that people choose internet account is the relatively high interest that they can earn. It is therefore a very good idea to research the best rates and to make sure that the rate that you are being offered is permanent and not just introductory.

Summary:

• Internet bank accounts allow customers to do their banking without having to set foot in a local bank branch.
• Some internet accounts offer very good interest rates linked to the savings made on maintaining a branch network.
• It pays to shop around to find the best account for you
• Ease of access and the cost structure are two of the main things to consider when choosing an internet account