Online Banking vs. Traditional Banking: Which Is Right for You?

If you feel like the traditional approach to banking — driving to a brick-and-mortar branch, waiting in line to talk with a bank teller — has gone out of fashion, you're right. According to the Federal Deposit Insurance Corp. (FDIC), nearly 64% of Americans said that online or mobile banking was their primary method of accessing their bank accounts.

Online or digital banks operate much like traditional banks, except they are exclusively online. When deciding between online banking vs. traditional banking, understanding the rates, fees and customer service practices of each option can help you choose the right banking method.

What is an online bank?

Online banks are financial institutions that allow you to open and manage a checking or savings account online or through a mobile app. From depositing a check to paying bills, you can do the vast majority of banking functions through the bank’s online portal or app. These banks have no physical branches, so customer service is only reachable via phone or online chat.

For example, Vio Bank is a well-known online-only bank. It offers savings accounts, certificates of deposit (CDs) and money market accounts with higher-than-average rates, but it doesn't operate any physical branches.

Customers have embraced digital banking. According to the FDIC, online and mobile banking is increasingly popular, and the number of people who visit bank branches to withdraw cash from an ATM, transfer funds or deposit checks is declining.

Many banks or credit unions are hybrid financial institutions, meaning that they operate physical branches but also offer online accounts and online or mobile banking tools. You'll also receive a debit card and may have check-writing privileges.

For example, J.P. Morgan Chase — the largest commercial bank in the country — is a traditional brick-and-mortar bank that offers online banking options. Although it has about 4,900 branches nationwide, the bank also has more than 63 million active digital customers. Mobile and online banking is a significant portion of Chase’s business.

Benefits of online banking

When looking at online vs. traditional bank accounts, digital banks have several advantages:

Higher rates on deposit accounts. Online banks tend to offer higher APYs than traditional banks on deposit accounts, including savings accounts and CDs. For example, while the average APY on savings accounts was just 0.45% in May 2024, you can find accounts with online banks offering APYs of 5.00% or better.

Lower fees. In general, online-only banks tend to have lower fees than their traditional brick-and-mortar bank counterparts. Without the overhead expenses of operating physical branches, online banks can pass on the savings to their customers by slashing fees. With online bank accounts, it's possible to find accounts with $0 monthly fees and low or no balance requirements.

Easy access. Instead of being limited to bank hours — most banks close at night and may have limited weekend availability — online banking allows you to manage your account whenever it's convenient for you. You can deposit checks, pay bills or transfer money from your online portal or mobile app 24/7.

Drawbacks of online banking

Although online banks can provide low-cost options, keep in mind these downsides:

Limitations on deposits. With online banks, you’re typically limited in how you can deposit money: Usually, you can only deposit cash via check or electronic transfer. If you have a cash-based job — for example, if you're a bartender or server — you may need a different bank account that allows cash deposits.

Customer service issues. Online banks may only be reachable by phone or online chat, which may also mean lengthy wait times to speak to a representative. You also lack the personal relationship you can build with a local bank. As a result, you may be frustrated with the bank’s customer service. In fact, a J.D. Power study found that customer satisfaction levels with online-only banks declined between 2023 and 2024.

Security concerns. Because online banks rely on digital account details, there is the risk for fraudulent activity and hacking. The Federal Trade Commission reported that consumers lost $1.8 billion due to bank transfer or payment fraud in 2023.

What is a traditional bank?

A traditional bank is a financial institution that operates physical branches and maintains a staff to handle banking transactions and customer issues.

Traditional banks, such as Chase, Bank of America and Wells Fargo, offer a broad range of products, including deposit accounts, loans and mortgages. Although their accounts often involve online capabilities, customers can manage their accounts by visiting a bank teller or making an appointment with a bank representative to discuss issues in person.

Traditional banks, like many online banks, are backed by the FDIC. Standard coverage is up to $250,000 per account holder, per insured bank, per ownership category — or simply who owns the account, such as a single or joint account.

Pros of traditional banking

Although online banks are known for their higher rates and lower fees, traditional banks stand out in several ways:

Quick resolutions. When you have a problem or want to open a new account, traditional banks allow you to visit a branch and speak with a representative. Your issue can be resolved in minutes, and, if you're opening an account, you could receive your new debit card or checks on the spot. With online banks, you may have to wait for a customer service representative at the call center to become available, and you may have to wait several days for a debit card or checks to arrive in the mail.

Range of banking products. Online-only banks usually have a limited number of banking products. For example, they may only have savings accounts and CDs, and they may not offer other options. By contrast, a traditional bank usually has a broader range of products, including multiple deposit accounts, loans and credit cards.

In-person services. A traditional brick-and-mortar bank can also provide in-person services, such as safe deposit boxes and notaries.

Security advantages. Traditional banks tend to be more established than online-only banks. For example, PNC Bank was founded in 1852. With such long-standing histories, these banks have established security protocols and are typically insured by the FDIC.

Cons of traditional banking

Traditional banks fall behind online banks in the following ways:

Lower rates. Traditional banks typically have higher overhead costs because they maintain physical branches and pay branch staff. As a result, they tend to offer lower rates on deposit accounts than online accounts.

Higher fees. Generally, traditional banks have higher account fees, such as monthly account maintenance fees. For example, large traditional banks often charge fees as high as $25 per statement period.

Access limitations. Physical bank locations are only available during certain hours. You may find that you can’t visit the bank while it's open, depending on your schedule.

Online banks vs. traditional banks: key differences

Both traditional banks and online accounts have their benefits. Where they differ from each other is in product selection and in rates and fees. Online banks can be appealing because of their lower costs and higher APYs, but they usually have fewer account options and may not offer a full suite of products, such as loans.

Traditional banks may be more expensive, but they tend to have more robust options than online banks. They allow you to get in-person assistance and develop a relationship with a local branch, and you can manage all of your financial needs in one place.

How to choose between an online bank and a traditional bank

When weighing online banking vs. traditional banking, consider how you usually handle your bank activities.

If the idea of driving to a branch to deposit a check fills you with dread, then you may prefer the convenience of an online bank account. These accounts tend to be best for those comfortable with managing money online or via mobile app, and they are excellent options if you're looking for the highest APY possible.

On the other hand, traditional banks are better if you prefer in-person help and want to manage all of your banking and borrowing in one place. Traditional banks can also be appropriate if you regularly have cash to deposit, as online accounts are typically much trickier for making these deposits.