Traditional vs. Online Banks: What You Need To Know

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Back in the day, traditional banks were one of the only ways to safely store your funds. But in today’s digital world, online banks offer another opportunity to safely store your funds without any need to visit a physical bank branch. Each type of bank has advantages and disadvantages to consider. If you are weighing out your options, you are in the right place.

Comparing Traditional vs. Online Banks

Both traditional banks and online banks offer banking services to customers. Below is a breakdown of some of the differences you are likely to find.


When it comes to storing your funds, safety is understandably a top priority. After all, you want to make sure your hard-earned funds are protected from loss. Luckily, both traditional and online banks are FDIC insured. When a bank of any kind is FDIC insured, it means your funds are protected for up to $250,000.

Whether you choose to work with a traditional or online bank, it’s important to make sure the bank is FDIC insured.


Online banks have less overhead than traditional banks. In general, this relatively low overhead translates into higher APYs offered on savings accounts than traditional banks. If you want to make the most of your savings through a high-yield savings account, you’ll likely find that online banks offer the most bang for your buck.

Traditional banks have more overhead to contend with. After all, running a network of physical branches isn’t cheap. With the higher overhead, most traditional banks offer relatively low APYs.

Access to Services

Access to in-person services is where traditional banks shine. If you don’t mind heading down to your local branch, you can speak with someone about any banking issues you might have. Plus, you can get access to the services you need. For example, many traditional banks offer easy access to cashier’s checks, cash withdrawals and more. The catch is that you’ll likely need to complete these tasks within the bank’s operating hours, which can be a problem for people working a regular 9 to 5 job.

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In contrast, online banks offer easy access to online services. You might not be able to talk to someone in-person but most online banks offer access to customer service representatives at all hours.


With relatively low overhead, online banks tend to offer customers accounts with fewer banking fees. If the thought of a monthly maintenance fee seems ridiculous, you can likely find a fee-free online banking option.

In general, you’ll find more fees tied to traditional banks. The higher overhead and more entrenched fee practices tend to lead to accounts riddled with banking fees.

Financial Products

Some online banks offer a wide selection of financial products. But other online banks have a limited selection of worthwhile financial products. For example, you might find an online bank with an attractive high-yield savings account and little else. In contrast, traditional banks tend to offer a robust selection of financial products.

If you are willing to split up your banking activity into multiple financial institutions, then an online bank offering a single standout account might still fit into your financial plans. If you want to conduct all of your banking activity in a single place, you might have more luck through a traditional bank.

Who Are Online Banks Best For?

Online banks are best for savers who want to get the most value out of their savings accounts. If you want your funds to collect interest earnings instead of dust, working with an online bank can make that reasonable request a reality.

It’s often financially efficient to work with an online bank. And for many, the idea of visiting a physical bank branch is about appealing as a visit to the DMV. But before you sign up for an online bank, it’s important to make sure you are comfortable navigating your financial management entirely online.

A Better Way to Bank

Who Are Traditional Banks Best For?

If you aren’t comfortable taking your finances online, traditional banks offer a solid option. In general, traditional banks are best for savers who want the convenience of a physical branch. If you prefer to handle your bank transactions in person, then traditional banks are an obvious choice.

Another reason to choose a traditional bank is a potentially wider selection of banking products. You might be able to handle your checking account, saving account, credit cards, mortgage and more through a single financial institution.

Final Take

Online banks and traditional banks each offer worthwhile opportunities to manage your finances. While online banks tend to offer more attractive APYs, traditional banks offer an in-person experience. The right choice varies based on your unique situation and preferences.


Here are the answers to some of the most frequently asked questions regarding online banking.
  • What's the best online bank?
  •  What are the easiest online bank accounts to open?
  •  Is SoFi an online bank?
  • How do you open an online bank account?
    • You can follow these steps to open an online bank account:
      • Visit the bank's website and compare accounts.
      • Choose your account and fill out the application.
      • Once approved, fund the account.
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