The theory behind online banking is that because they do not need to maintain branches, and presumably operate with less staff, they are able to pay higher interest. This is generally true and putting your money into an online bank or even an online division of a brick-and-mortar bank, can yield big dividends. An online bank should not be confused with a regular bank that offers online access to your account. Most banks in Australia do offer online services, but are primarily physical operations. But those banks that have minimal or no actual branches do offer a unique set of advantages for those who do not need the usual array of branch-oriented services.

Higher interest is often an indicator of greater risk, but in this case, it is not true. An online bank is still subject to the same strict regulations and oversight as the bank down the street. There may be a perceived element of risk in doing banking business online, although this risk is in fact minimal. In virtually all cases your online banking sessions are encrypted and password-protected, and in many cases authentication takes place with an ultra-secure hardware token that the bank will issue you.

Online banks are a relatively new innovation and have been in Australia since about 1999 when ING first launched their line of online accounts. Operating in several countries, ING is the largest provider of online banking services in the world. Besides ING, BankWest has online offerings, and both are very well established. BankWest's TeleNet Saver account has proven very popular, an online term account with an attractively high interest rate. Doing online banking with these established institutions has a great advantage: holders of online savings accounts may also take advantage of many other offerings, such as applying for loans, mortgages, and credit cards online as well. Banks will provide users with a convenient custom online portal, from which all accounts can be easily managed. For example, if you want to transfer money between accounts, a physical bank would require you to visit the branch and see a teller—but with online services, you can transfer the funds with a few clicks of the mouse.

There is a trade-off, but depending on your situation an online bank may be ideal. The rate offered by online banks is usually higher than that of regular accounts, but the downside is reduced flexibility. If you need the services of a physical branch often, then this would not be for you. But for a place to just park your money and earn interest, an online banking account is ideal.