Online-Only vs. Traditional Banking: Which one is right? (2024)

FAQs

Online-Only vs. Traditional Banking: Which one is right? ›

Since online banks have lower overhead costs compared to traditional banks, they're often able to pass on those savings to their clients in the form of no or low fees and competitive interest rates. In most cases, digital banks will offer multiple types of bank accounts, often without charging any monthly account fees.

Online banks offer higher interest rates on savings products and lower interest rates on loans. If you need to deposit cash regularly, you'll likely want the convenience of a brick-and-mortar bank's ATM network.

Yes, just about all online banks provide FDIC insurance of $250,000 per depositor, per FDIC-insured bank, per ownership category.

Traditional and online-only banks both have their advantages. Basically, you have to decide whether a brick-and-mortar institution's services and personal touch outweigh the often higher costs, in terms of lower interest rates and more numerous fees, of banking there.

If they're FDIC-insured, online banks are as safe as traditional brick-and-mortar banks in many ways. You can also take steps as a consumer to ensure your account is as protected as possible when banking online, whether you bank with a brick-and-mortar or an online bank, also called a direct or digital bank.

There are certainly perks to building a long-term relationship with your local bank down the street. You might find it's easier to secure better loans, or that the customer service can't be beat. But the money in your savings account could be earning more interest if you shop around for an online alternative.

Some of the biggest security issues associated with online banking include malware or phishing scams to intercept or steal customers' personal and financial information. Online banking is safe. However, hackers are constantly at work, finding new ways to get around security measures.

But they do have their downsides, including lack of in-person customer service, the option to deposit cash and potential security risks.

Cash can be hard to deposit

Online banks often have cumbersome cash deposit processes. You might have to find a deposit-accepting ATM. Or you may need to put money into a traditional bank account and transfer it to your online account.

Which is better, online banking or traditional banking? ›

Since online banks have lower overhead costs compared to traditional banks, they're often able to pass on those savings to their clients in the form of no or low fees and competitive interest rates. In most cases, digital banks will offer multiple types of bank accounts, often without charging any monthly account fees.

Online banks also tend to charge far fewer fees than traditional banks. Various online banks charge no monthly maintenance fees, for instance. Brick-and-mortar banks often charge a monthly fee that you'll need to maintain a set minimum balance to avoid.

Online banks typically offer the best rates and lowest fees of any bank type. Online banks don't offer branches and assume you're proficient with navigating online apps and websites. Read on to compare the pros and cons of online banks. That way, you can choose the right type of bank with confidence.

Online banks are able to pay competitive interest rates because they aren't running a network of branches. They have much less overhead, so they're able to pass that savings to consumers in the form of better rates.