Fintech is changing how many of us look and interact with our finances.
Banks are also entering into this technology. Some banks have online components to their brick-and-mortar locations, while newer banks opt to be entirely online. With more options for banking, it can be challenging to know which type of bank is right for you.
Traditional banks offer the convenience of having a local location if you need help. However, online banking offers better rates and lower fees due to not having the overhead of a physical location.
A traditional bank will have a physical location.
It can be your local city, state bank, or a larger national bank like Bank of America. You can go into a physical location and speak to someone about your banking needs. You can transfer money, deposit checks, withdraw cash, and pay bills, all in person.
Many traditional banks also have mobile apps that allow you to do many of these things on your phone.
The most obvious benefit of a traditional bank is that you can have in-person experiences.
For example, if you need cash or a loan, you know you can meet with someone in-person. In addition, showing your face in a bank helps build relationships, which can help if you ever need a loan.
There are more banking options at a traditional bank. You can use this bank for a checking and savings account and take out a home equity loan, auto loan, mortgage, and more. You can choose to handle all of your financial needs with the same bank if you want that convenience.
You can also do this with a traditional bank if you need to access your money faster. For example, if you need cash today, you can go to your bank and get the cash right away. You can do this with an online bank, but you must go to an ATM.
There are some downsides to traditional banks.
The first negative aspect is there are usually more fees than an online bank. Some banks require you to pay a fee to have a savings account with them unless you meet their minimum threshold to waive the fee.
Traditional banks usually have lower interest rates for savings accounts. So you will usually get some of the lowest interest rates and earn maybe a few dollars each year in your savings account.
Some traditional banks, especially local banks, don’t have a robust mobile app for an online banking experience. For example, some apps can’t cash a check with your phone and require you to go in and visit the bank to do this physically.
Online banking is exactly what it sounds like - it is only online and has no physical location.
You must use your computer or phone for all of your banking needs to transfer money, deposit checks, and pay bills. You will have to use a chat or call someone for support if you need help.
Many online banks waive ATM fees, so you can still physically get cash if needed.
Online banks have many benefits.
Their most significant advantage is that they have lower fees than traditional banks. Since online banks are entirely online, they do not have the overhead of a traditional bank like paying rent and utilities for a physical location.
Because of this, they can offer low or no fees. In addition, you won’t have to keep a certain balance in these accounts to avoid a fee.
Online banks offer better interest rates compared to traditional banks.
Again, they can provide better interest rates since they don’t have a physical location. The average interest rate of a traditional bank is 0.06% compared to the average rate of an online bank at 0.45%. This difference is huge when it comes to earning interest on your savings.
If you need cash at any point, you’ll be able to visit most ATMs with an online bank that will waive those fees. An online bank will give you a map of ATMs where your fee will be waived.
Online banks also offer federal insurance to protect your money, just like traditional banks. You can talk to someone 24/7 through online chat options as well. An online bank may be a good option if you cannot visit traditional banks because of their hours.
One of the biggest drawbacks to online banks is that they do not have any physical locations.
Therefore, you do not have the option to talk to someone in-person if you need help. This can be a deal breaker for some people.
There are also fewer financing options with an online bank. Most online banks have savings accounts and sometimes an option for a mortgage or line of credit. However, if you need a checking or CD account, you’ll have to use another bank, most likely a traditional one.
Having different accounts with different banks can also be frustrating.
Deciding which type of banking institute you want is entirely up to you.
For some, having access to a physical bank is their top priority. For others, getting the best rates and lowest fees is more important than a physical location. Think about your life and what would be the easiest for you. Choosing a bank should work for you and shouldn’t be overly frustrating.