Should you have an online checking account?

Learn the advantages and disadvantages of online checking accounts.

I haven't set foot inside a bank or written a paper check in over 6 years. This may sound amazing to some people but it's the way I like it and it's one of the main advantages of having an online checking account.

I've been a Personal Finance Coach for almost 5 years now and I advise all of my clients to do as much of their banking online as they can.  As you can probably imagine, making the transition from real time to digital can be an adjustment for some so to show them the benefits of having an online checking account I made the following list.  I hope you find it useful and maybe after reading it you'll know whether or not having an online checking account is for you.

Advantages of having an Online Checking Account:

Online Checking Accounts are a money and time saver.  With paper checks the typical payment sequence goes somthing like this:  sit at desk -> gather bills, checkbook, pen, register, stamps, envelopes -> write check -> write check amount in register -> stuff it in envelope -> seal envelope -> add stamp -> (repeat above for all bills) -> take envelopes to post office -> hope payments arrive on time and don't get lost in the mail -> next month compare register to bank statement to see what has been cashed and what hasn't.

With online checking accounts the process goes like this:  turn on computer -> go to bank website -> enter payment amount, address and date to send -> push submit.  It's even shorter if you pay the same amount each month becuase you can schedule recurring payments for monthly bills that will be paid automatically.

Online Checking Accounts offer protection.  If you've ever had a payment lost or delayed in the mail you know that the penalties can be steep.  With an online checking account you can prove when and how the payment was sent and whether or not it was cashed.  This ability has helped me to avoid more than one late payment in my time because I can prove that the amount was sent on time.

Online Checking Accounts are convenient.  Rather than carrying around a paper checkbook you can use your debit card for purchases.  These purchases will be deducted almost immediately from your account so you never have to wonder about outstanding payments that haven't cleared.

Online Checking Accounts are safer.  It's become pretty easy these days for people to intercept a paper check, clean it (remove the ink - except for your signature) and then write themselves a big, fat check from your bank account.  Yes, this can happen with your debit card but you have protection with a debit card that you don't have with paper checks.

Online Checking Accounts are almost immediate.  If you're paying all of your bills via online checks and your debit cars your account will almost always be showing a balance that is up to the minute.  No more wondering about random checks that might show up months later.

Online Checking Accounts offer incentives.  Many, but not all, banks are really striving to go paperless these days.  As a result, some are offering incentives for people who switch to online banking.  This could include a cash incentive, higher interest rate or something else but something is better than nothing.

Disadvantages of having an Online Checking Account:

No face-to face-interaction.  Unless you choose a local bank for your online checking account it is unlikely that you'll get any face-to-face interaction with the bank employees.  You'll most likely be doing any contact via phone or email.  If you're one who likes to go in and talk to your teller it would be better to choose a local bank (most offer online checking these days).

Online Checking Accounts rely on technology.  If you're in an area where internet connections can be difficult or you are a technophobe then you may not want an online checking account because you will have to deal with technology.  If it makes you feel any better though, my 59 year old mom who barely knows what Google is has switched all of her accounts to online and she loves it.

You don't get the float.  With paper checks you can usually rely on 2-3 days of float between the time a payment is mailed and the time it's cleared (it used to be longer but those days are gone).  This can help if money is tight.  With an online checking account that is gone.  When a payment is sent it's debited from your account immediately.  This can help with budgeting but if you need that float it may be a problem.

So there you go, those are some advantages and disadvantages of online checking accounts.  It's a personal decision but everyone I know who has gone online has never looked back.

Best Online Checking Account

One of the best online checking accounts is offered by ING Direct.  It's called Electric Orange and is one of the best programs out there.  It helps that it's connected to the Orange Savings Account which is, by far, the best savings account to have.  The advantages of the Electric Orange account are:

1. It's an interest bearing account so you earn interest on the money you have sitting in your checking account.
2. Free online bill pay so you don't have to waste time writing paper checks (they'll even pay the postage for bills that don't accept electronic transfers).
3. Free Master Card Debit Card included
4. Free ATM access at over 35,000 ATMs world wide.
5. P2P payments meaning you can skip using paypal when you need to send your friends money.

The main disadvantage of the Electric Orange account is that they don't give you paper checks.  So, if you write paper checks a lot, they won't work well for you.  If you need paper checks or need to be able to walk into a bank, I'd check out WaMu.  They seem to be the lesser of the eevil big box banks.

Good luck with deciding how you want to handle your financial matters!