When it comes to deciding where to put your money, it can seem like the sky’s the limit. There are so many banks out there, with new ones popping up all the time. But where you decide to do your banking can have important effects on your financial life, so it’s important that you don’t just pick the next bank that comes along. You need to pick the right bank for your financial needs.
Here’s an overview of online banks and traditional banks, as well as why you might want to use one over the other, so you can decide which is a better fit for you.
The difference between online and traditional banks
Although both traditional and online banks take care of your money for you, they do differ in a lot of their features and capabilities. Here are some of the differences at a glance:
Fees Interest Service Online access
Online banks Lower fees or even free Higher APY for savings; some offer interest on checking, too Online and some phone customer support Automatic online and mobile app access
Traditional banks Higher fees, and more of them Lower APY, even close to zero In-person, online, and phone support Online and mobile app access usually available if you want it
- No physical locations – Online banks don’t have physical locations you can visit, you’ll do all of your banking via the web, or a mobile app.
- Speedy account opening process – Opening an account at an online bank can be a quick and easy process. You’ll need to provide some personal info, but once you identify yourself, your new account can be up and running in a matter of minutes.
- A slick online process – Online banks focus on the user experience, making banking as easy as possible via their online platform.
- Some ATM fees – Online banks may offer ATM access, but you’ll want to make sure you find out what in-network fees you might encounter, and what cash limits your account imposes.
- Higher interest rates – Online banks usually offer better interest rates. They don’t always have the expenses that traditional banks do — no buildings and so on — so they can pass a little more of the savings on to the customer.
- Few to no fees – Online banks are the clear winner when it comes to fees. Just as many online banks don’t need to shave your interest yields down to nearly nothing, they also have the wiggle room to charge less for fees.
- Phone or online customer service – While online banks definitely have customer support teams, you’ll also find yourself scrolling for answers in support forums or chatting with an online bot to get the help you need.
- Local branches are available – Banks like Chase have actual buildings, called branches, that you can visit, either on foot or via a drive-through. These branches are staffed with bank tellers and other employees who can help you complete all your banking needs.
- Opening an account can take a while – At a traditional bank, you’ll likely have to bring documentation with you and visit a branch during normal business hours. You could find yourself waiting anywhere from five minutes to an hour for your account to be completely set up.
- Some online banking options – Traditional banks frequently offer a banking website or mobile app for you to conduct your transactions. However, oftentimes, those apps aren’t as robust as online banks.
- Large ATM network – Since traditional banks have bank branches, they’ll also offer ATM access at their network of ATMs.
- Lower interest rates – You might get 0.10% APY (or even 0.01% APY) on a savings account at a traditional bank, but it’s much easier to find higher yields at online banks.
- Typically come with fees – A traditional bank might charge $10 or even $15 per month just to have a checking account.
- In-person customer service – Here’s where traditional banks definitely have the edge. After all, part of all that overhead that keeps them charging more is staffing bank branches with friendly faces.
The difference between personal and business banking
- Meant for personal transactions – Personal banking is the banking you do for your personal life.
- Direct deposit options – A personal bank account is where you’ll likely have your paycheck direct deposited.
- Meant for personal savings goals – You may put your vacation savings or your emergency fund in your personal savings account.
- Lower fees – Personal bank accounts typically have lower fees and are not designed for frequent business transactions.
- For businesses only – You might use a business bank account if you’re an entrepreneur with your own small business, a freelancer, or an independent contractor who needs to keep business money separate from personal money.
- Lower interest rates, typically – You’ll often find business banking and personal banking offered at the same institution, but rates offered for business accounts won’t necessarily be the same as what’s offered for personal accounts.
Why you should use online banks
Online banks may seem like a new invention in the banking world, but there’s a reason they grew so quickly and are, in many ways, more popular with younger bankers in particular. Plus, online banks are typically every bit as safe as traditional banks, and their funds are FDIC-insured, too.
Online banks have a few other benefits, as well.
One of the biggest benefits of most online banks is that they typically offer much better interest rates on your savings accounts. After all, with no bank branches to pay for, online banks have lower overhead, and they can pass those savings on to the customer.
Online banking interest rates can be as much as 10 times higher than standard banks’. During these times of rock-bottom interest rates, it might not be much — say, 1.0% APY — but that still beats the 0.10% APY of typical traditional banks. One of the best online checking account Bonus Rates you’ll see anywhere is with Juno, an online checking account that offers a 1.20% Bonus on balances up to $5,000.
The beauty of online banking is 24-hour convenience. Need to make a deposit — at 3 a.m.? No problem. Just snap a pic of the check with your phone and securely upload it to your account. Or if you have a bundle of cash, you may be able to use an ATM, prepaid card, or bank transfer.
Wondering if your check cleared? Just visit your banking website and check the status. You can make transfers, withdrawals, and bill payments at most online banks, too.
In addition to competitive interest rates, online banks also tend to offer their customers very low fees compared to traditional banks. Some online banks offer fee-free checking accounts or savings accounts, perks that can save you about $10 or $15 a month depending on the bank. You might even find a bank that doesn’t charge ATM fees, transfer fees, or most other fees, either.
Who should use online banks
Those already living their life online
Online banking will require you to be comfortable with using an app or a website to make deposits, check balances, and transfer funds.
If you can confidently open an app and follow directions and hate making a special trip to visit the bank, you’re going to love online banking.
is a perfect example. When you sign up for a free Chime account, you get access to their Spend and Save accounts (roughly equivalent to traditional checking and savings), but instead of a checkbook, you get Chime’s easy-to-use app. It’ll show you your balance, your recent transactions, even real-time notifications and alerts. Lose your card? Just freeze it from within the Chime app, and whoever finds it won’t be able to use it. Hate writing checks? Me too. Just send one using Chime. They’ll write it out and mail it for you!Chime Disclosure - *Chime is a financial technology company, not a bank. Banking services and debit card provided by The Bancorp Bank or Stride Bank, N.A.; Members FDIC.
(1)Save When I Get Paid automatically transfers 10% of your direct deposits of $500 or more from your Checking Account into your savings account.
^Round Ups automatically round up debit card purchases to the nearest dollar and transfer the round up from your Chime Checking Account to your savings account.
Those who hate paying for things
One of the best things about online banks is that you can almost always find one for free.
For instance, you can get a free checking account at BBVA. For a checking account at a traditional brick-and-mortar bank, you could be looking at $120 a year just in monthly fees to use the account, but not at BBVA.
If you like free things, you’ll love the banks that pay YOU for banking with them. LendingClub Bank is one of the banks that pay interest if you maintain a certain balance. Their Hybrid Checking Account will pay you 1.00% APY if you keep $2,500 in your account — compare that to what you’ll get at a major traditional bank, which is just 0.01%. (Not a typo: the national average savings account interest rate is one one-hundredth of a percent. Ouch).
Freelancers or side hustlers
As mentioned above, bank accounts come in not just online or traditional flavors, but personal and business, too. If you’re a freelancer or side hustler, I encourage you to check out the benefits of using an online business bank account for your biz. It keeps your business funds separate from your personal money, which helps you treat your efforts as a legitimate business. (It also makes things way easier at tax time). If you are used to doing most, or all, of your business online, you will probably enjoy doing your business banking through an online bank as well.
Not every business bank account is made for the freelancer life, though. Even business bank accounts designed for small businesses can require high daily balances or large monthly fees, and that often doesn’t fit with operating a freelance business.
You’ll be much better off with a free online account in these situations. Novo, for instance, is a great bank to do business with. It is free to open an account with Novo and they do not charge monthly fees, either. You can link your personal checking account and arrange for invoices to be paid to your Novo business account, then transfer some of your earnings over to your personal account. You can protect some of your business earnings for paying taxes later and it’s easy to keep records, too. Plus, if you sign up with Novo, they’ll help you with discounts for apps and services you’ll actually use in your business: think Slack, Stripe, or Quickbooks.
Novo offers a robust app that lets you monitor your balance, send and receive money, pay bills, and transfer funds to linked accounts.
You should also consider Bluevine – a company that offers both a business checking account and loans for small businesses. The Bluevine Business Checking account provides unlimited transactions, live support, and no monthly fees. Plus, you can earn 1.5% APY. To qualify for that APY you need to meet one of the following monthly eligibility requirements (effective May 1, 2022):
- Spend $500 per month with your Bluevine Business Debit Mastercard®.
- Receive $2,500 per month in customer payments into your Bluevine Business Checking account via ACH, wire transfer, mobile check deposit, or directly from your merchant payment processing provider.
The business loans side comes with a line of credit. With the line of credit, you can get up $250,000 in credit, with rates as low as 4.8%.
Why you should use traditional banks
So, with all that being said, there are still some benefits to using traditional banks. If that’s what you’re used to, you might be inclined to carry on as you always have been.
For instance, traditional banks will be able to offer you more personal service. Depending on the bank you choose and the tellers that staff your local branch, you might wind up banking at the kind of place where everybody knows your name. The employees can help you set up banking products such as loans and credit cards and explain how they work. If you prefer a personal touch to your banking experience, traditional banks are definitely in your favor.
With a traditional bank, you might have access to more powerful features than you would with a bare-bones online bank. In addition to personal service at in-person locations, you might have a more robust banking website with more features, including ones that will help you save money. Traditional banks also tend to be more involved with the communities that they service and some can even provide business account holders with networking opportunities.
Who should use traditional banks
Those who want a little hand-holding
Traditional banks are going to better for those who are looking for a personal touch to their banking. You’ll be able to just pop over to your local branch and see a smiling face (instead of going crazy in the multiple-choice labyrinth of a customer service call).
In fact, a lot of traditional banks offer more than just checking or savings, allowing you to do a lot of different banking tasks under one roof. HSBC is a UK-based bank making their way across the pond, and they offer CDs, credit cards, mortgages, investing, and insurance in addition to a wide variety of checking and savings accounts. You’d never need another bank if you chose to route all your financial activities through them.
CIT Bank is another one that offers a full-service selection of banking and borrowing, with credit cards and CDs rounding out their checking and savings selections. They even offer a 1.00% APY on their CIT Savings Builder account, though you’ll need either a $25,000 balance or you’ll need to deposit $100 monthly to see those yields.
Those who need to bank like a boss
If it’s business bank accounts you’re after, traditional banks can help you bank like a literal boss. Chase Business Complete BankingSM is a popular choice for small businesses. There’s no minimum to open an account, and there are thousands of bank branches across the U.S. Plus, there are still robust online options like the Chase website and mobile app for when you need to accomplish your banking tasks right away.
Overall, whether you go with an online or a traditional bank depends a lot on your banking needs, not to mention your preferences and budget. For the low-cost, independent route, online banking might fit the bill, and for the high-budget but high-features path, traditional banks may be more your speed.
Remember, there’s no law that says you can have only one account — you might prefer to have your checking at a traditional bank, but use an online savings account for the great interest rates. It’s up to you. Either way you slice it, you’ll be stashing your cash in a safe, dependable place so it can grow — which is the whole point of a bank account, no matter where you put it.