If you’re looking to open a new checking or savings account, you may wonder whether you should go with a traditional or online bank. Which one is better?
The answer depends on your banking needs, priorities, and personal preferences. Online banks often have lower fees, higher interest rates, and more user-friendly websites and mobile apps. But traditional banks offer certain services, especially at branches, that can’t always be fully replaced by online banks. To help you make the right choice, below is a breakdown of how online and traditional banks compare.
Key Points
• Online banks, which tend to have lower overhead, may offer higher interest rates, lower fees, little to no minimum balance requirements, and more robust online banking features.
• Online banks lack in-person services and may have more limited cash deposit/withdrawal options and fewer financial services.
• Traditional banks provide in-person service and may provide more comprehensive services, as well as more cash deposit and withdrawal options.
• Traditional banking may offer lower interest rates, have higher fees, and more limited online banking tools.
• Choosing the right bank for you depends on your needs; while online banks may be ideal for those comfortable with technology, others may prefer in-person services.
Differences Between Online and Traditional Banking
First, it’s important to note that many traditional banks offer online banking features so that members can access their accounts digitally, and online banking is popular at both traditional and online banks. According to SoFi’s April 2024 Banking Survey of 500 adults, 48% of respondents said they use online banking daily, and 26% reported that they use it several times a week. Only 5% of survey participants said they don’t use online banking at all.
There are some key differences between online and traditional banks, however, that are important to keep in mind. Here’s a look at some of those differences.
| Feature | Online Banks | Traditional Banks |
|---|---|---|
| Interest rates | Typically higher | Typically lower |
| Bank fees | Typically lower | Typically higher |
| ATMs | Usually offer fee-free transactions through a partner ATM network | Often offer their own network of ATMs for fee-free transactions |
| Customer service | Online chat, email, and phone support | In-person, online chat, email, and phone support |
| FDIC insured? | Yes | Yes |
| Cash deposits? | May be limited | Yes |
Interest Rates and Fees
Online banks typically spend less on real estate and staffing and are able to pass that savings along to their customers in the form of no (or low) fees and higher than average interest rates. Many digital banks offer checking accounts with few or no fees, and online savings accounts with annual percentage yields (APYs) several times more than the national average.
ATMs
Traditional banks typically offer a wide network of branded ATMs that account holders can access without a fee. Since digital banks don’t have branches, they don’t have their own ATMs. Instead, they usually partner with a large ATM network that customers can use for free for withdrawals and, in some cases, depositing cash. Or they may have an arrangement where they refund you for any bank fees you incur using an ATM. Online banks tend to work hard to level the playing field on this front.
Customer Service
While online banking provides various customer service channels, such as online chat, email, and phone support, traditional banks offer the benefit of in-person customer service. This can be a significant advantage for individuals who prefer face-to-face interactions or more personalized service.
Safety and Security
Both traditional and online banks typically use state-of-art security to protect customer funds. In addition, the Federal Deposit Insurance Corporation (FDIC) provides the same coverage of customer deposits at online banks as they do for brick-and-mortar institutions. If you have your money at a bank (traditional or online) insured by the FDIC, your funds are covered up to $250,000 per depositor. Co-owners of joint accounts at the same bank are each insured up to $250,000.
Cash Deposits
You can easily deposit cash at a traditional bank by going into a branch. With an online bank, however, handling cash can be a little more complicated. Since digital banks lack physical branches, you’ll need to locate an in-network ATM that accepts cash deposits. Alternatively, you may need to deposit the cash into a traditional bank account first, then transfer the funds to your online bank account. In SoFi’s survey, 63% of respondents said they frequently transfer funds between accounts using online banking.
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What Is Online Banking?
Many traditional banks offer online banking in addition to in-person services, but some banks operate exclusively online. Referred to as online, online-only, or digital banks, these institutions offer similar services to traditional banks, minus the physical branches (and free lollipops).
For example, you can typically open checking and savings accounts, get a debit card, sign up for automatic bill pay, transfer funds, deposit checks via mobile app, receive direct deposits, and more at an online bank. You can even withdraw cash, since online banks typically partner with a third party network to offer fee-free ATM service.
Pros and Cons of Online Banking
Some of the main advantages of choosing an online bank include:
• Lower fees: Online banks generally don’t charge monthly account fees; some have also done away with all common bank fees, including overdraft fees and out-of-network ATM fees.
• Higher interest rates: Online banks tend to offer the highest APYs on deposit accounts. If you’re shopping around for the best high-yield savings accounts or high-yield checking accounts, online banks often come out on top.
• User-friendly interfaces: As digital-first institutions, online banks typically offer modern and intuitive platforms and mobile apps with robust features, such as tools that enable automatic saving or investing.
• Low or no minimum balance requirements: Unlike some traditional banks, online banks usually don’t require you to maintain a minimum balance to earn the advertised rate or avoid fees. They also tend to have low or no minimum opening deposit requirements.
While online banks excel in many areas, there are some drawbacks to keep in mind:
• Lack of in-person services: Online banks typically have no physical branches, so there’s no opportunity for face-to-face interaction or assistance.
• Cash deposits and withdrawals may be limited: Some, but not all, ATMs allow cash deposits. ATMs also typically limit how much cash you can withdraw in one day. And if all you have is a savings account, an online bank may not allow cash withdrawals at ATMs.
• The range of accounts may be limited. You’ll often find fewer financial services at an online bank than you would at a full-service traditional bank. In some cases, an online bank may only offer a checking account, a savings account, and a certificate of deposit (CD) account.
• Connectivity issues. If you’re unable to access your bank online, whether due to planned maintenance or connectivity issues, you may not be able to access your money, pay bills, or carry out other banking tasks. While a traditional bank might encounter the same issues, its branches might not be affected by a site disruption.
What Is Traditional Banking?
Traditional banking refers to banks with a physical presence. At larger banks, this will often include regional headquarters in each country where they are active, as well as a network of branches and branded ATMs. Traditional banks typically have a large number of employees and offer face-to-face customer service during banking hours.
Traditional banks generally offer a full range of financial services, including savings and checking accounts, CDs, money market accounts, as well as a wide array of lending and investment products. In-person services may also include offering cashier’s checks, certified checks, money orders, check cashing, and cash/coin deposits.
Traditional banks, especially the largest banks, can be your one-stop shop for all things related to your finances.
Pros and Cons of Traditional Banking
Here’s a look at some of the key benefits of traditional banking:
• In-person service: Traditional banks offer the option of walking into a branch and getting face-to-face assistance from bank staff. The banking team often gets to know their customers for more personalized and friendly service.
• Comprehensive services: Traditional banks typically offer a broader range of accounts and financial products than their digital counterparts.
• Fast access to funds: Depositing checks at a branded ATM or with a teller at a branch can mean same-day access to that money, instead of waiting a day or longer for a mobile check deposit to process.
• Easier cash deposits/withdrawals: With a traditional bank, you can make cash deposits and withdrawals at a physical branch, which generally comes with fewer limitations than doing these transactions at an ATM.
But traditional banks also have some downsides. Here are some to consider:
• Higher fees: Traditional banks often charge various fees for services, such as overdrafts, ATM withdrawals, and account maintenance. These fees can quickly add up and eat into your balance if you’re not careful. According to SoFi’s data, 29% of people have switched banks because they wanted lower fees.
• Lower interest rates: Savings accounts at brick-and-mortar banks tend to offer relatively low APRs on savings accounts and nominal or no interest on checking accounts.
• Time-consuming: Traveling to a local branch — and potentially waiting in line — to meet with a bank representative to conduct your banking in person can take up a lot of time.
• Limited accessibility: Though traditional banks may offer 24/7 online access to your account, branches typically operate only during specific hours, which may not always align with your schedule. The SoFi survey found that 23% of people rarely visit a bank branch.
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How to Know if Online Banking Is Right for You
Whether you choose to go with an online bank or a traditional financial institution is a personal decision. Here are some signs that an online bank will be a good fit:
• You prioritize high interest rates and low fees to help your money grow faster.
• You are comfortable accessing a partner network of ATMs vs. a bank’s own branded machines.
• You are satisfied with seeking customer service via online chat or phone.
• You are confident in managing your money without having a personal banker at your local branch.
• You are digitally savvy enough to conduct transactions online.
If the above statements don’t ring true for you, then you’ll likely be better off with a traditional bank.
The Takeaway
Choosing between online and traditional banking involves weighing the convenience and cost benefits of online banking against the personalized service and comprehensive offerings of traditional banks.
Online banking generally offers 24/7 access, lower fees, and higher interest rates, making it ideal for those comfortable with technology. Traditional banking provides face-to-face interaction, immediate access to funds, and a wide range of services, catering to those who value personal relationships and in-person assistance.
Ultimately, the best option for you will depend on your individual needs, preferences, and lifestyle. Using both can also be a viable strategy, allowing you to leverage the strengths of each option to optimize your money management.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
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SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
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