When it comes to banks, you have many options. In general, banks fall into 2 categories: traditional and online.
Traditional banks offer brick-and-mortar locations you can visit in person, while online banks grant you access to banking products online.
Despite the names, however, traditional banks aren’t solely in-person and online banks aren’t only virtual. For example, traditional banks often offer websites and apps. Meanwhile, online banks may offer access to a network of ATMs to withdraw funds.
Let’s explore the differences between traditional and online banks as well as the benefits and drawbacks of each.
What is a traditional bank?
Traditional banks have physical branches and are likely what you think of when you hear the word “bank.” Nowadays, traditional banks tend to go beyond the in-person services they used to specialize in, offering access to online platforms, like apps and websites. That way, customers can handle many banking needs remotely. For example, you can check your balance, pay bills and transfer money through a traditional bank’s digital platforms, but you also have the option to visit a branch.
Traditional banks also typically have a network of ATMs where you can withdraw money and deposit checks and cash.
Pros and cons of traditional banks
Pros
- Customer service: One of the biggest advantages of traditional banks is the ability to speak with someone in person if you need help with something. You may also choose to access services online or via the bank’s app.
- Easily deposit and withdraw cash: Traditional banks make it convenient to deposit and withdraw money at a branch or an ATM. Tellers may also give you access to larger withdrawals than you might be able to take out at an ATM.
Cons
- In-person requirements: Although many traditional banks offer online services, you may still be required to visit a branch for certain needs, like using a safe deposit box or getting documents notarized.
- Limited hours: Bank branches usually operate within normal business hours, which may not always align with your schedule.
What are online banks?
As the name suggests, online banks exist purely online, meaning they don’t have physical branches. You handle everything through their website or mobile app, from checking your balance to depositing checks. Online banks may partner with existing ATM networks to give you free access, similar to traditional banks, or they may reimburse certain ATM fees.
Pros and cons of online banking
Pros
- Convenience: Online banks allow you to manage your finances anytime, anywhere. From transferring money to paying bills, you can handle it all from your phone or computer.
- Lower fees: Since online banks don’t have the overhead costs of maintaining physical branches, they may be able to charge lower fees for certain services or offer higher interest rates on savings accounts.
Cons
- Harder to deposit cash: One of the biggest challenges with online banks is depositing cash. Some online banks don’t accept cash deposits at all. Others will require you to find an ATM that accepts cash deposits or deposit your money at a traditional bank and then transfer it to your online account.
- ATM fees: While some online banks reimburse ATM fees, others may not, or they may cap reimbursements. These fees can add up if you frequently withdraw cash.
- Customer service: Online banks typically rely on customer service via phone, chat or email, which may feel less personal.
Traditional vs. online banks: how to choose
Your best option for opening a bank account will depend on your needs and preferences. In general, if you value in-person customer service, need to deposit cash regularly or prefer having a local branch nearby, a traditional bank may be the better fit. On the other hand, if you prioritize the ability to handle everything digitally and want to avoid common brick-and-mortar account fees, an online bank might be the right choice.
All that said, you don’t have to choose if you don’t want to. You might find, for instance, that a combination of both traditional and online banking provides the right balance.
Banking FAQs: Online vs. Traditional banks
What differentiates online banks from traditional banks?
Online banks offer access to websites and apps and may provide ATM access or offer ATM fee reimbursements. Traditional banks can also offer those digital banking tools, plus physical branch locations and free ATM access.
What are the advantages and disadvantages of online banks?
Online banks provide a digital-first approach to banking and may charge fewer fees compared to traditional banks. However, it may be more difficult to deposit cash into an online-only bank account, and you may face ATM fees.
Is it better to have an online bank or a physical bank?
It depends on your needs. Online banks may be better for those who rarely use cash and prefer an online-only experience, while traditional banks may suit those who prefer face-to-face banking and customer service.
Disclosure: This article is for general educational purposes. It is not intended to provide financial advice. It also is not intended to completely describe any Citi product or service. You should refer to the terms and conditions financial institutions provide for various products.
