Online Banking: Why Millions Are Missing Out on Better Rates & Convenience

Afraid to bank online? Here's why you may want to reconsider.

There are different things you should look for in a bank -- great customer service, fraud protection, and convenience. And you may worry about the latter if you opt to put your money in an online bank. In fact, 23% of consumers won't open an account at an online bank without physical branches, according to a new study by The Ascent. But here's why that could be a major mistake.

Don't lose out on higher interest rates

It costs money to operate a bank -- like paying rent, covering utility costs, and managing other expenses.

Online banks, however, don't have the same level of overhead. While it costs money to operate an online bank -- after all, someone has to pay those customer service representatives you can contact by phone -- it's less expensive than running a physical bank. And that's why online banks can often offer more competitive interest rates on products like savings accounts and CDs than physical banks can.

Say you're looking at a high-yield savings account for the $10,000 you've worked hard to sock away. If an online bank offers a 1.5% annual interest rate while a physical bank offers 1%, you'll score an extra $50 a year by choosing the online option.

But it's not just better interest rates you might get with an online bank. Often, online banks charge lower fees (like monthly service fees for accounts with lower balances) because, again, they don't have the same level of overhead to cover.

What are you afraid to give up?

If you're nervous that by banking online, you'll give up some of the conveniences of a physical bank, here are some things to consider.

• You may get better customer service with an online bank. Online banks know they have to step up their customer service game, so you may find that there's generally less of a wait to speak to a representative than with a physical bank.
• You may have easy ATM access. You need a way to withdraw cash without driving all over town or paying costly fees. Many online banks, however, have an extensive network of ATMs. You might find an in-network ATM at your local supermarket, convenience store, or pharmacy. Also, some online-only banks will reimburse ATM fees you incur at other banks.
• Your account should be nice and secure. Online banks don't spend the money to maintain branches like physical banks do. As such, they have the funds to invest in great security. (This isn't to say that physical banks don't have great security, but you can bet that online banks make it a priority.)

Of course, there are drawbacks to using an online bank. If you need a safe deposit box, well, your online bank can't provide it. And if your job is such that you get paid in cash a lot, that could prove challenging, because not every ATM accepts cash deposits. But if you're not worried about these things, then an online bank could be a good choice, especially if your goal is to snag the highest interest rate on your money. It pays to explore your options rather than assume an online-only bank won't work out well for you.