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- Although traditional brick-and-mortar banks still exist around the world, many people handle all their banking transactions online.
- Online banking also allows you to transfer funds, make payments, and deposit paper checks using your phone or computer.
- Traditional banks are still convenient if you deposit cash regularly or prefer face-to-face transactions.
- Find out which banks currently have the best high-yield savings account rates »
I have many memories of going to the bank with my parents as a child, but I can't remember the last time I had to go to the bank in person. For years, I managed my personal bank accounts exclusively online.
Here we take a look at some of the key differences between online banks and traditional banks.
Online banking is the future of banking
A recent survey found that Americans of all ages are more willing to bank with an online-only bank. A Finder survey found that about 30% of Americans already bank online or plan to switch to online banking.
While the majority still use traditional brick-and-mortar banks, many are using digital banking tools with their traditional banks. But just as we've seen technology change many parts of our lives, online banks offer everything most people need from the convenience of their smartphones.
There are some situations where traditional banking still makes sense. It all depends on your needs and preferences and whether you want to get the best deal in terms of interest rates and fees.
Benefits of online banking
Early online banking products appeared in the 80s and 90s. The first online-only bank was registered in 1999. Since then, online banking has rapidly evolved to become a quick and convenient way to handle your money.
With online banking, you can do almost everything you need to do from your couch, in your pajamas. For internal accounts, online transfers are instant. Transfers to and from external accounts, including brokerage firms, take 2-3 days. You can deposit most checks by simply taking a photo and tapping a button. Mobile banking apps are extremely powerful tools.
You can't go to a bank branch to get cash, but online banks issue debit cards. Some banks offer large networks of fee-free ATMs. The best online banks don't charge ATM fees or refund fees that other banks charge.
Perhaps most importantly, online banks typically have lower fees and higher interest rates than traditional banks. As of this writing, the average interest rate for savings accounts nationwide is 0.09%. Some traditional banks pay as little as 0.01%.
High-yield savings account interest rates at online banks are almost always much higher, typically well above 1.5%. Also, even the best checking accounts have no minimum balance or activity requirements to avoid monthly service fees regularly found at traditional banks.
Advantages of traditional banking
Traditional banks set up shop in the United States in 1784. Many branches now operate in a very similar way to how they did over 200 years ago.
A bank branch is a place where you can take care of all your banking needs with the assistance of a teller or branch manager. While this in-person service is appreciated by some customers, it won't last forever. If you have a bank branch, you'll know exactly where to get help with your account.
In addition to in-person customer service, branches also offer a place to deposit cash into your account. If you have a job where you often get paid in cash or receive tips, it's a good idea to have a bank account where you can deposit your money.
Bank branches also offer less-needed services, such as receiving foreign currency before your trip and notary services. Outside of these situations, whether or not to continue using a traditional bank is usually a matter of personal preference.
You can do almost anything with online banking
Besides depositing cash, online banks can do much of the same things traditional banks can do. Although mostly self-service, the convenience of managing your money from home or a mobile app makes this the future of banking.
If you're considering making the switch, think about how often you'll actually need to go to a bank branch for help. For people who don't go to the bank regularly, online-only banking may be a great decision.
