The fast moving online world has made banking easier and more accessible. Traditional banks that have existed for centuries are now competition with the ever growing popularity of online banks. As consumers gain more and more access to technology, people are having to make the choice whether to continue working with a traditional bank or make the switch to an online bank. This does raises the question of what makes these two types of banking institutions different and how can individuals figure out which one would work best for them.
An Overview of Traditional Banks
Banks that have physical branches, online support, and ATMs available to customers are considered Traditional Banks. In essence, they are banks you have likely frequented in the past or still use to this very day. Being able to have in-person sessions with a representative who guides through the account opening process along with having the ability to withdraw cash, make deposits or take out loans are just some of the multitude of services these institutions offer.
Chase, Wells Fargo, Bank of America and Citibank are perfect examples of such banks. As far as customer service is concerned, traditional banks cater a full range of financial services tailored to individuals or businesses. While face to face interactions have started to get outdated with online consultation gaining popularity, banks are trying their utmost to maintain customer relationships and provide ATMs for easy account access and money management.
What Are Online Banks?
Online banks are a different type of financial institution when compared to traditional banks. As the term suggests, they are only available over the internet and do not have a branch network physically situated in the world. Online banks provide mobile apps or websites where account holders can manage their accounts, access customer support, and perform transactions. Examples of online banks include Chime, Discover Bank, and Ally Bank.
Online banks use technology to provide their services in a streamlined manner. These institutions focus on providing robust platforms and mobile applications which enable customers to access their funds, transfer money, and even apply for loans from the comfort of their homes or on their mobile devices.
Key Differences Between Traditional and Online Banks
Let’s focus on the more important aspects of the difference between traditional and online banks and look at the differences in several key categories as discussed below.
1. Physical Presence
- Traditional Banks: The most significant distinction between traditional and online banks is the physical presence. Traditional banks have branch locations, where customers can meet with representatives, cash checks, deposit cash, and conduct various other services in person.**
For those who prefer to talk to someone directly or the need instant assistance for other complicated financial matters, traditional banks offer a clear advantage.
Online Banks: Unlike traditional banks, online banks do not provide offline branches. All services can be done through the bank’s mobile app or website. For customers who prefer one on one assistance, this may be less convenient, but for others who are more adaptive towards technology and are comfortable managing finances on the internet, it is very ideal.
2. Fees and costs
Traditional Banks: Out of all the banking services, traditional banks have the most expensive fee structures. Beyond monthly maintenance charges, they may include ATM charges (in case they are used at out-of-network ATMs), overdraft fees, and a lot more. The reason for everything being expensive tends to always occur due to the existence of physical locations, staff, and other operational expenditures.
Online Banks: As previously mentioned, online banks possess lower charges which is all the more reason why they do not operate from offline branches. Unlike many online banks that provide fees for checking and savings, most other banks provide lower interest rates on loans alongside free ATM access with partnerships from big ATM networks. Online banks usually have better reputation when it comes to servicing clients that are looking to cut down costs associated with banking.
3. Interest Rates
- Traditional Banks: Compared to online banks, traditional banks usually offer lower rates on savings accounts and CDs. This is because the traditional banks have branch networks which come with high overhead costs. Moreover, traditional banks may have more conservative interest rate policies that are in line with their strategic business objectives.
- Online Banks: One of the major advantages of online banks is that they tend to offer higher rates on savings accounts, money market accounts, and even CDs. Due to lower overhead, online banks are able to give customers an added interest rate bonus, thereby making the accounts more appealing to potential customers. This can be a huge advantage for customers who are looking to increase the amount of their savings.
4. Customer Service
- Traditional Banks: The option of visiting a bank branch to receive face-to-face assistance is one of the benefits traditional banks offer. If you have a complicated situation and require help, you can walk into a branch and get help from a representative face to face. This is perfect for customers who want assistance in real time, whether it’s to apply for a loan and need guidance for a complicated banking process.
- Online Banks: Service for customers of online banks is digital and includes communication over the phone, live chat, or email. Some online banks have help centers or knowledge bases that answer many frequently asked questions. While customer service through online channels can be efficient and straightforward, it lacks the charm offered by traditional bank branches.
5. Convenience and Accessibility
- Traditional Banks: Traditional banks are advantageous to customers who prefer physical interactions because they offer face-to-face services at their premises. This is very helpful for those customers who live close to a branch. Also, a number of traditional banks have ATMs and drive-thru services, which are available around the clock.
- Online Banks: Online banks are very convenient for those who are comfortable using technology. They provide account, transfer, and other financial service access through mobile applications or websites at any time of the day or night. Bill payments, direct deposits, and fund transfers are more readily available at online banks. Online banking services might be less available to people without a stable internet connection or those who prefer to do their transactions in person.
6. Tech and New Developments
- Traditional Banks: The larger banks (or traditional banks) have got with the program to some extent by adopting mobile apps, online banking features, and even digital wallets. However, they may still be behind when it comes to tech innovations as compared to other online banks. It is easy to see banks as technologically slow given their complex systems and structures which is why it often takes time for them to adopt new technologies.
- Online Banks: Traditional banks tend to be more conservative when it comes to rolling out new technologies due to the complexity of managing large, established operations. On the other hand, online banks tend to have a forward-thinking attitude and are more tech-oriented. They will often offer advanced tools like mobile apps, seamless payment systems, automated budgeting software, easy access to AI financial advisors, and so on. Customers wanting the latest and greatest when it comes to banking are best served by online-only banks.
7. ATM Access
- Traditional Banks: ATMs operated by your own bank are free to use for customers of traditional banks, and the majority also belong to some national chain allowing free access to ATMs across the country. On the downside, if you need to use an ATM not affiliated with your bank you will incur fees which is a drawback.
- Online Banks: Most of the time, online banks do not maintain their own ATMs. More often, they work with big ATM franchises to offer clients thousands of ATMs across the country at no additional charge. If you use an out-of-network ATM, you will likely incur some charges, but many online banks will reimburse those costs up to a specific limit each month.
Which Bank is Best for You?
As with any service, the decision will depend on your personal tastes and requirements; this is also true when choosing between the services offered by traditional and online banks. Some of the tips include the following:
- Choose a Traditional Bank If:
- You would rather speak to a representative in person and need an elaborate in-person resolution for your financial plans.
- You are accustomed to banking at a branch and require a service such as cash deposits.
- You willingly incur additional costs for the mere presence of a branch.
- Choose an Online Bank If:
- You prefer administering your finances over the internet, and with that comes effortlessly managing services via your mobile phone.
- You are seeking value in terms of higher interest rates on savings accounts and lower fees.
- You are someone who seeks a financially-advanced technological institution.
Conclusion
Online and traditional banks each have their own strengths and weaknesses. Online banks have greater advantages when it comes to lower fees, higher interest rates, and services that utilize technology. However, traditional banks offer stronger personal service and conveniences provided in-branch. In the end, the best option will depend on your banking needs, preferences, and lifestyle. Some clients even find it useful to access both types of banks – online for convenience and traditional banks for a personal touch.