If you’re planning to open a savings or checking account, chances are you’ve come across two main options: Traditional and online banks.

Traditional banks have been the go-to option for decades. But the rise of digital banking and increased technological adaptation has disrupted the status quo. Both traditional and online banks have their pros and cons, and the right option depends on your banking needs and financial goals. 

Not sure where to begin? We’ve got you covered. This short guide explores the key differences between traditional and online banks so you can make an informed decision. 

Accessibility 

Accessibility is the primary difference when it comes to online vs traditional banking. Traditional banks operate via physical branches with fixed business hours, typically Monday to Friday. Consumers need to visit the nearest branch in person to make transactions, such as cash deposits or check submissions. 

In comparison, online banks are accessible 24/7 via websites and mobile apps. All you need is an internet connection to perform a range of banking tasks, such as fund transfer. Online banks also have a fully digital onboarding process. 

Fees and Interest Rates

Opening a bank account incurs two main costs: Account operating fees and interest rates (for savings accounts). Traditional banks tend to have higher fees since they have to manage branches, employ staff, and handle security. However, they have lower interest rates. 

On the flip side, online banks offer lower or no monthly maintenance fees. You could also find more competitive interest rates on deposits and loans. 

Speed and Convenience

Since traditional banks require manual intervention, transactions can take longer. The same goes for loan approvals.  

In comparison, digital banks provide near-instant transaction processing and account services. Moving money between accounts within the same online bank takes less than a minute. International transfers could take a couple of minutes to a few hours (traditional banks could take 1-5 business days)

Online banks also use automation to approve loan applications, allowing you to skip lengthy processes. 

ATMs

A traditional bank typically has a vast ATM network spread throughout the country. Customers can withdraw money 24/7 without a fee. 

Online banks don’t have ATMs. They might partner with another large ATM network or refund any ATM fees you incur. 

Range of Services

Traditional banks offer a broad spectrum of services, including:

  • Mortgages
  • Business loans
  • Investments
  • Safe deposit boxes
  • Wealth management

Digital banks, in comparison, focus on core services that can be provided digitally. This includes:

  • Account management
  • Check deposits
  • Electronic transfers
  • Bill payment
  • Digital wallets
  • Digital debit cards
  • Basic loans
  • High-yield savings account 

That said, reputable online banks like SoFi are expanding their service offerings to cater to a broader customer base. 

Security 

Traditional and online banks take varying approaches to security. The former use high-quality vaults, guarded branches, and comprehensive compliance protocols. 

Online banks take things a step further. They use cybersecurity measures, such as:

  • Multi-factor authentication
  • Biometric account logins
  • Data encryption protocols
  • Threat detection tactics 

As far as the safety of your funds is concerned, the Federal Deposit Insurance Corporation (FDIC) provides the same coverage for online banks and traditional financial institutions.