What are the Differences Between Banking Online and Banking in Traditional Institutions?

Author: BankFeeInsider.com     Thursday, September 04, 2014 12:00 AM

The traditional banking model has always been that people opened accounts at a local bank and visited frequently to deposit and withdraw money. But with the advent of online-only banking, why would someone choose one option over the other? With all things being equal – they both provide the same basic services such as free checking free banking, and low to no bank fees, and are both FDIC insured – what reasons do people have to weigh? Here are some of the advantages and disadvantages that can be identified between banking online exclusively and banking at a physical location:

Online Banking


  • Online-only banks typically carry higher interest rates on their checking accounts and savings accounts than physical banks. This is because they can retain more money. Online only banks don’t have the pay for the overhead costs that physical locations do, so they can pass the savings on to the customers.
  • Transferring funds between accounts at the same online bank is instantaneous.


  • Online banks require that their customers use other banks’ ATMs. This usually results in a higher ATM fee than the traditional institution would charge.
  • Transferring money between a traditional bank and an online bank can take several days.
  • Cash deposits cannot be completed without a linked account.
  • Checks must be mailed to the online bank to be deposited which increases the time it takes for the money to be available. Some online banks have developed an electronic deposit system. As this practice continues, this disadvantage will be negated.

Traditional Banking


  • Physical locations provide several services more readily than online banks such as notary services and safety deposit boxes.


  • Lower interest rates
  • Slower processing because of the physical nature of the interaction

In the end, it seems that the better decision isn’t whether to open an account at a brick and mortar institution or online – it is to open accounts at both of them. Having both accounts allow you to:

Deposit Cash

If you receive cash often, having an account at a bank with a physical location will allow you to deposit it. If you want to host a savings account in an online venue, link the traditional account and the online account and transfer the funds.

Deposit Checks Online

Brick and mortar banks have offered expanded services to make use of current technology. Many traditional banks offer electronic deposits.

Earn a Higher Interest Rate on Savings

If you have both and online and traditional bank accounts, you can earn the higher interest rate on the money that you keep in the online account and leave a portion in your traditional account for day-to-day use.

Withdraw Money Without Fees

Having a traditional bank account and an online bank account allows you to transfer money from the online account to the traditional one and withdraw it using a debit card from the traditional bank. This allows you to avoid the extra fees associated with using an online bank’s debit card.

Having both accounts gives you flexibility. Happy banking!

Source: BFI