5 Ways Online Banks Can Be Better Than Traditional Banks
Written by
Catherine Collins
Edited by
Amber Barkley
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While a 2023 UserTesting study found that 83% of people prefer traditional banks over digital-only banks, online banks can be better than their brick-and-mortar counterparts in several ways. For example, mobile banks typically have better interest rates, lower fees and 24/7 accessibility. Also, for those who don’t like talking on the phone or in person, using live chat to ask customer service questions is another benefit.
Above all, mobile banks are incredibly convenient. It saves you time when you can open your bank app and complete a couple of tasks from home — you don’t have to wait in long lines or hope your deposit slip makes it through the bank tube in the drive-thru.
Perhaps the biggest perk is that online banks often offer better interest rates and far lower fees than traditional banks. In fact, many online banks don’t have fees at all.
Advantages of Online Banks
Here’s more information on ways online banks can be better than traditional banks.
Interest Rates
Research published by the National Bureau of Economic Research showed online banks “increase rates that they offer on deposits significantly more than traditional banks.” The research also showed that people who typically use online banks are younger with higher incomes.
Customers can now quickly shop around for the best rates. When online banks change interest rates faster than traditional banks, online banks are better able to compete for customers.
Even a slightly better interest rate can make a huge difference over time. For example, if a customer switches to an online bank because it offers 1% more interest on a high-yield savings account, they could earn hundreds or even thousands of dollars extra over time, depending on their starting amount.
Similarly, offering slightly lower interest rates on other lending products, like personal loans, can help customers pay off debt faster, since more of their payments go toward the principal.
Mobile Access
Although many banks have apps and online access, many brick-and-mortar banks still don’t — and of those that do, many don’t work well. Whether they are small local banks or credit unions, some banks haven’t implemented mobile systems just yet.
Additionally, not all banks have features that come with mobile access, like depositing checks with a photo or managing an investment portfolio. Depending on the bank, customers might have to go to a branch to deposit a check or make a phone call to make a trade. All of that takes time.
Live Chat
According to the Consumer Financial Protection Bureau, banks save billions of dollars by adding chatbots to their sites. Having a chatbot answer questions can save customers’ time and the bank’s labor costs.
Many banks also have live representatives to help with customer service questions. While traditional banks don’t always have representatives you can speak with after hours, most online banks do. In fact, several of them employ customer service representatives 24/7.
Lower Fees
Online banks typically charge lower fees than brick-and-mortar banks. Many of them don’t charge fees at all. The reason is that online banks have much less overhead than traditional banks. They don’t have to pay for real estate, building overhead or dozens of employees at each physical location. They can pass those savings on to their customers.
Your online bank might waive other common fees, too, like ATM fees, overdraw fees and more.
Shorter Wait Times
Depending on the time you go to the bank, you might have to wait in a long line to speak to someone. If you need to apply for a loan or speak to a banker, you might have to make an in-person appointment.
With online banks, you can complete banking tasks at any time of day. You don’t have to worry about waiting in lines or driving to the bank to deposit a check. For people juggling jobs, families and other responsibilities, saving time by accessing online tools gives them another reason to choose online banks.
Downsides to Online Banks
In the spirit of fairness, there are downsides to online banks. For one, the experience is more impersonal, and it can be challenging to establish relationships with a banker like you can at a brick-and-mortar bank.
Because there isn’t an in-person connection, it can be challenging for online banks to build customer loyalty. Customers might go from one online bank to another, chasing the lowest interest rate — or the highest, depending on the product. To combat this, online banks must build strong personal brands and offer unique perks to attract customers and keep their loyalty.
Final Thoughts
There are benefits to both online banks and traditional banks. However, online banks offer unparalleled ease for those who embrace banking technology. Using an online bank saves time and money due to lower fees and more competitive interest rates.
While online banks lack the personal feel of a physical bank, they can offer more incentives to make switching to one worthwhile.
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