Traditional vs. online banks: Which is right for you?

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Where you decide to bank plays a big role in how you manage your money. Online banks have become much more popular as more people use their phones to do most of their banking.

Around one in five consumers use a digital bank as their primary bank account and report greater satisfaction than those who use a traditional bank account, according to recent research by Galileo.

But that doesn’t mean traditional banks are going extinct. Most consumers (77%) still use brick-and-mortar banks to store their funds, primarily due to face-to-face service.

If you’re having a tough time deciding between the two, here are the pros and cons of online banks and traditional banks.

Pros and cons of traditional banks

Traditional banks, which include Bank of America, Chase, and Wells Fargo, have physical locations. These banks often offer a wider range of products, including checking accounts, savings accounts, and credit cards. The best big banks provide access to investing services, mortgages, and other loans.

But traditional banks aren’t without limitations.

“Traditional banks provide physical branches for in-person assistance but may have higher fees and lower interest rates on savings accounts,” says Alec Kellzi, certified public accountant at the Kellzi Group.

Here’s a closer look at the pros and cons of traditional banks:

Pros

• Physical locations: Brick-and-mortar branches allow you to receive in-person support from a banker.
• Variety of banking services: Traditional banks provide a more comprehensive selection of banking services than online banks.
• Extensive ATM network: The largest banks in the U.S. have vast ATM networks, and you can use them to make fee-free withdrawals.

Cons

• Higher fees: Some traditional banks have monthly maintenance fees on checking and savings accounts.
• Minimum deposit requirements: Savings accounts at traditional banks often require a higher minimum opening deposit.
• Lower interest rates: Traditional banks pay subpar returns on savings accounts compared to online banks.

Pros and cons of online banks

Like the name suggests, online banks exist entirely online, with no physical branches. These banks have a robust mobile platform allowing you to manage your money anywhere.

“Online banks offer higher interest rates, lower fees, and convenience to access accounts. They are often better for those comfortable with digital banking,” says Kellzi.

But like traditional banks, online banks also have their fair share of drawbacks. There’s no in-person support, and the financial products or services you can access may be limited. It could also take longer for deposits and transfers to go through.

Pros

• Competitive rates: The best online banks offer competitive interest rates, boosting your savings and investments.
• Fewer fees: Online banks generally waive monthly maintenance, minimum balance, and in-network ATM withdrawal fees. You also likely won’t get charged overdraft fees.
• Easily accessible: You can access your accounts 24/7 from your smartphone, and some online banks also offer 24/7 phone support.

Cons

• No physical presence: You won’t be able to speak face-to-face with a banker if you choose an online bank. 
• Limited selection of banking services: Specialty banking services, like safe deposit boxes, notary services, and cashier’s checks, may not be available. 
• Slower transactions: It could take a few business days for cash deposits and transfers to go through.

Which bank should I choose?

Traditional banks are best for those who want a personal touch and value face-to-face interactions. They're ideal if you want the convenience of physical branches and access to a wide range of financial products and services. Traditional banks often cater to customers who have complex financial needs such as loans, mortgages, and investment options.

Online banks are a great fit for tech-savvy individuals who want convenience and accessibility. They suit those who value higher interest rates and want lower fees.

“Online banks can be great for items like an emergency reserve or a home down payment, where [you get] easy access while benefiting from higher rates. Traditional banks play a role in the day-to-day functioning of your household expenses. Given a wider product offering by traditional banks, these relationships can be important at key life events,” says Christopher L. Stroup, certified financial planner at Abacus Wealth Partner.

The bottom line

Overall, online banks may be the better bet for most, as they offer lower fees or better returns on savings accounts. That said, many traditional banks have adapted to meet customers' needs by providing solid digital banking experiences. Plus, you’ll often find that financial services are more extensive than online banks.

Deciding on a traditional or online bank account comes down to your unique needs and personal preferences.

“Write down your needs and wants in your banking relationship. Do you value personal service or having many service offerings in your banking relationship? If so, then a traditional bank may be best for you. If you emphasize a quality online experience, better rates, and lower (or no) fees, then an online bank may be the better match,” Stroup says.

Editorial Disclaimer: Opinions expressed are author's alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.