The low overhead of online-only banks allows them to offer customers higher-than-normal yields on checking accounts, savings accounts, money market accounts and certificates of deposit (CDs). That’s the primary reason why people choose to move some or all of their banking online. These high yields, however, require sacrifices in some areas. Here are some of the downsides to online-only banking:

ATM Transaction Fees
Not having a brick-and-mortar bank often means not having free ATMs you can use. Consequently, you can rack up a fortune in ATM fees for frequent withdrawals. Some online-only banks do offer access to a network of affiliated ATMs, however. ING Direct (Stock Quote: ING), for example, allows account holders to use the Allpoint ATM network, which includes 32,000 ATMs. You may also be able to have some or all of your ATM fees credited back to your account with some banks. This is not the case with all online-only banks, however. One way to work around this problem is to get cash-back on purchases from grocery and drugstores and avoid the ATM as much as possible.

Technical Difficulties
Online banking offers a lot in the realm of technical convenience, but having all of your banking online also exposes you to the possibility that there could be technical difficulties that get in your way. It’s possible (though unlikely) for an online bank system to crash or become unavailable temporarily. More likely, you could have trouble accessing the Internet due to computer difficulties or Internet service interruption on your end. This could complicate accessing your money at a crucial moment. With a brick-and-mortar bank, you’d have the option of visiting the branch if time was of the essence.

Slower Deposits and Money Transfers
Depositing a paper check or money order into an online-only account can take several days. Most online-only banks only take deposits by snail mail, so it takes time for checks to arrive. Alternatively, you can make deposits at a brick-and-mortar bank and transfer the funds, but that too takes time. Money transfers between online and traditional banks can take days to clear. Check deposits at a brick-and-mortar bank also take time to clear, but typically you have access to a portion of those funds while you wait.

Worse Customer Service
Part of the overhead that online-only banks save is in manpower. Consequently, you may get a bit of a runaround through an automated phone system if you call for help. This is often the case with traditional banks as well. With traditional banks, however, you can visit a live person at the branch for help. You may even have formed a relationship with the people at your bank or credit union, which can prove useful.

Vulnerability to Phishing Scams
In general, you don’t have to worry about hackers stealing your identity through your online bank account because banks use sophisticated encryption technology. Online banking of any kind, however, exposes you to some security risk from phishing scams. These scams use phony emails to direct you to dummy sites usually to get your login information. You can avoid this hazard by never clicking on links in emails from “your bank” and approaching such emails with skepticism.

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