Online vs. Traditional Banking: Which is Better?

Online vs. Traditional BankingAccording to credit behemoth Discover, 82% of U.S. customers used online banking in the last 30 days. But they aren’t just using a standalone computer for their banking needs; they’re turning to smartphones, tablets, and other mobile devices to get the job done. In fact, according to recent data, the number of people banking on their smartphones has almost doubled since 2012.

Taking notice of the trend, nearly all traditional banks have instituted some sort of online banking component for their customers during the last decade. Whether that includes making it possible to transfer money between accounts, open up CDs, or pay bills online, banks have learned it makes sense to cater to tech-savvy consumers.

Still, there are some big differences between traditional brick and mortar banks who offer online banking options and banks that are entirely web-based. Here are a few things to consider before deciding whether or not an online bank is right for you.


One of the biggest concerns for consumers who are considering web-based banking is security. For many, the act of physically handing money over to a cashier feels a lot safer than making the same transaction electronically. Furthermore, many people fear their information could be stolen and dispersed somewhere in the deep underbelly of the web. Although banks have improved their security immeasurably over the past few years, this is a valid concern.

When it comes to security, your best bet is to take precautions on your own. Both traditional and web-based banks store your information in databases that could potentially be vulnerable to cyber criminals, so either one could potentially be hacked at any time. Instead of worrying, be vigilant about your online banking relationship and doing what you can to keep it safe on your own.

When logging into your accounts, use secure connections rather than shared or public WiFi. Furthermore, choose an online bank that is backed by the FDIC. If you do, you’ll have the same protections as customers who use traditional banks (up to $250,000 in coverage).


In many ways, online banking is extremely convenient for customers. With online banking, you have access to your accounts 24/7 from anywhere in the world with an internet connection. This is one of the main reasons that online banking has become so popular, and it is one of the best features that traditional banks offer through their online banking components. Because of the nature of online banking, customers can instantly make transactions – including deposits, transfers, and bill pay – at any time they want, even on holidays.

While all online banking options offer round-the-clock access to your accounts, web-only banks may not be as convenient as they seem. While it’s true that you have constant access to your accounts, you may struggle to complete certain tasks if your bank doesn’t have a physical branch that you can visit. For example, customers of web-based banks may have difficulty depositing money. Although most online-only banks give you the option of either mailing in a check or sending it via a text message, doing so is a bit more inconvenient than simply handing the check over to a bank teller.

Furthermore, that check may take longer to clear than at a traditional bank, especially if you are mailing it in. Additionally, customers of web-based banks are not able to deposit cash at all. With that being said, if the majority of your money is directly deposited into your account via your paycheck, that may not pose a problem for you.

When it comes to actually accessing your money, traditional banks also have the upper hand. Most traditional banks, especially the larger banks, have ATM machines located everywhere. While online banks aren’t able to saturate an area with their own ATM machines, most of them have agreements with ATM services which allow you to make ATM withdrawals without incurring a fee. Still, like most traditional banks, you are only allowed to withdraw a certain amount of money per day (typically about $500).

However, if you need to withdraw more than your daily limit, accessing your money can get tricky. Customers of traditional banks can easily visit a branch and withdraw more money in person. Obviously, if you are an online banking customer, you do not have this option. There are some ways around it, like cash advances on your debit card, but you’ll need to determine what those ways are with your preferred online bank.

Interest Rates

If you are looking to get the best interest rates on your banking products, look no further than a web-based bank. Because web-only banks don’t need to meet the same type of overhead commitments as their brick and mortar counterparts, online banks are able to offer far higher interest rates on their banking products than traditional banks. A study shows that the average interest rate on savings and money market accounts at online banks is 5 to 6 times higher than it is at branch-based banks. Additionally, many larger banks don’t even offer interest bearing accounts for customers with balances that dip below $10,000, whereas most online banks let you earn interest no matter the size of your account.


In addition to higher interest rates, online-only banks typically have lower minimum balance requirements and charge lower fees than traditional banks. Some web-based banks like Ally do not charge a monthly maintenance fee or require a minimum balance at all. Like many traditional banks, online banks almost always have free checking accounts available. The low fees and minimum balance requirements make it easy to see why web-based banks appeal to younger customers.

Which is the Best Type of Bank for You?

So, which type of bank would work best for your situation? It all depends on what you are looking for. If you are seeking higher interest rates and lower fees, web-based banks may be the way to go. Likewise, if you need fast access to lots of cash and the ability to make cash deposits, you may want to stick with your traditional bank.

Fortunately, you don’t really have to choose one or the other – especially at first. If you want to ease into online banking, you can try out some online banking features through your traditional bank’s online offerings. Furthermore, just because you open a web-only account doesn’t mean you have to close out your accounts at your local branch. If you can’t commit quite yet, you can leave some money in both places.

Regardless, of what you decide, make sure to do your research before choosing your next bank. It is your money, and you need to decide the best way to make it work for you.

Published or Updated: September 4, 2015


  1. Jordan says:

    Great look at the pros and cons of traditional and online banking. It really depends on what you need from your bank as to which is actually better!

    • Greg Johnson says:

      Thanks! Personally, I like to use a traditional bank – mostly because that is what I’m used to using. However, we use a ton of the online banking features that our banks offer.

  2. Caroline says:

    Interesting piece, I personally find online just a lot more convenient as it’s there when you want it rather than having to visit etc. I like the advice about taking responsibility for your own security. There are definitely things you can do at home and on the move to make things a lot more secure.

    • Greg Johnson says:

      Thanks Caroline. I think online banks are great, especially if you are looking to get better interest rates. When it comes to security, it really is just a matter of being smart about where and how you use your bank accounts.

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