Pros and Cons of Online vs. Traditional Banks
Back in the day, traditional banks were one of the only ways to safely store your funds. But in today’s digital world, online banks offer another opportunity to safely store your funds without any need to visit a physical bank branch. Each option offers distinct advantages and drawbacks, making the decision dependent on personal preferences and your specific financial needs.
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There is so much variety of banking products and services today, that whether you prefer traditional, online or mobile banking, you can more accurately control your short-term transactions and long-term financial goals. However, it is always good to know the pros and cons of in-person banking vs. using a mobile app.
Traditional vs. Online Banks: Safety
When it comes to storing your funds, safety is understandably a top priority, as you want to make sure your hard-earned funds are protected from loss. Luckily, both traditional and online banks are FDIC-insured, which means your funds are protected for up to $250,000.
Traditional banks pro: Established banks often have a long history and a reputation for reliability. Customers might feel more secure knowing their money is handled by a well-known financial institution.
Traditional banks con: They are often slower to adopt the latest technology trends compared to online banks, which can result in a less user-friendly experience or updated digital protection.
Online banks pro: By eliminating paper statements and reducing the carbon footprint associated with maintaining physical branches, online banks are a more environmentally friendly option but there is also less physical access to your information scammers could use for fraud.
Online banks con: They rely heavily on technology, which means that system outages or software glitches could temporarily disrupt your access to accounts or be subject to hacking. Although online banks employ robust security measures, the risk of cyber threats and fraud remains a concern.
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Traditional vs. Online Banks: APYs
Online banks have less overhead than traditional banks, which typically means they can offer higher APYs on savings products. Here are some other advantages and drawbacks:
Traditional banks pro: Dealing with a bank representative can be particularly beneficial for complex transactions, such as obtaining a mortgage or discussing investment options, and doing so in person could make your rates or APYs negotiable.
Traditional banks con: They have more overhead of running physical branches to contend with to they generally offer lower interest rates than online banks.
Online banks pro: They often provide higher interest rates on savings accounts and CDs, helping your money grow faster.
Online banks con: A lack of personalized customer service can mean you might not be getting the best rates for your unique accounts.
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Traditional vs. Online Banks: Access to Services
Access to face-to-face services is where traditional banks shine. If you don’t mind heading down to your local branch, you can speak with someone about any banking issues you might have.
However, if every time you want to deposit a check you have to make sure your local branch is open, you may run into roadblocks. Here are some other pros and cons of online and traditional banking when it comes to convenience and access:
Traditional banks pro: They offer easy access to cashier’s checks, cash deposits and withdrawals, debit cards and more.
Traditional banks con: The catch to banking in person is that you’ll likely need to complete these tasks within the bank’s operating hours, which can be a problem for people working a regular 9-to-5 job.
Online banks pro: They offer easy access to online services around the clock. You might not be able to talk to someone in-person but most online banks offer access to customer service representatives at all hours as well as 24/7 access to your accounts.
Online banking con: There are no physical branches you can’t visit a branch for in-person service or to deposit cash. For some, this can be a significant disadvantage, especially if they need immediate assistance.
Traditional vs. Online Banking: Fees
With relatively low overhead, online banks tend to offer customers accounts with fewer banking fees. If the thought of a monthly maintenance fee seems ridiculous, you can likely find a fee-free online banking option.
Traditional banks pro: Though often charge more fees than online options, they do offer more products and services.
Traditional banks con: In general, you’ll find more monthly fees for maintenance or overdrafts tied to traditional banks. The higher overhead and more entrenched fee practices tend to lead to accounts riddled with banking fees.
Online banks pro: Without the overhead costs of physical branches, online banks typically offer lower fees or no fees for many standard services, such as account maintenance and overdraft protection.
Online banks con: They offer fewer fees but often this coincides with offering fewer products and services.
Traditional vs. Online Banks: Financial Products
Some online banks offer a wide selection of financial products. However, other online banks have a limited selection. If you are willing to split up your banking activity into multiple financial institutions, then an online bank offering a single standout account might still fit into your financial plans. If you want to conduct all of your banking activity in a single place, you might have more luck through a traditional bank.
Traditional banks pro: They offer a comprehensive suite of financial services, including safe deposit boxes, notary services, a wide network of ATMs and more specialized financial products.
Traditional banks con: The amount of services and products provided are robust, but tend to come with higher monthly fees for varying accounts.
Online banks pro: You can find an online bank with an attractive high-yield savings account which may be your only requirement.
Online banks con: While online banks excel in basic services, they may not offer the full range of financial products available at traditional banks, such as safe deposit boxes or in-depth financial planning.
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Final Take To GO: Which Type of Bank Is Best for You?
The bottom line is that online banks and traditional banks each offer worthwhile opportunities to manage your finances. While online banks tend to offer more attractive APYs, traditional banks offer an in-person experience. The right choice varies based on your unique situation and preferences.
Online banks are best for savers who want to get the most value out of their savings accounts. If you want your funds to collect interest earnings instead of dust, working with an online bank can make that reasonable request a reality.
If you aren’t comfortable taking your finances online, traditional banks offer a solid option. In general, traditional banks are best for savers who want the convenience of a physical branch. If you prefer to handle your bank transactions in person, then traditional banks are an obvious choice.
Sarah Sharkey contributed to the reporting for this article.
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