Online Banking vs. Traditional Banking: What’s the Difference?

A traditional bank is a financial institution with physical branches where you can walk in, talk to a teller, and handle your banking needs in person. Most traditional banks offer a wide range of services, including checking and savings accounts, loans, credit cards, and investment options.

Traditional banks are a solid choice if you value in-person service. But brick-and-mortar banks have enormous operational expenses that online banks simply don’t have. For example, they need specialized buildings to secure your money, state-of-the-art technology and equipment, and a large staff. They’re in the business to make money, not just store yours.

To pay for these expenses, traditional banks tend to charge more fees and offer lower interest rates on savings compared to online banks without physical locations.¹

Traditional bank pros

• Greater range of financial services. Traditional banks generally offer a wider range of financial services, such as more cash deposit and withdrawal options.²
• Developed ATM network. Many traditional banks have a strong network of ATMs for cash and deposits.
• More options for customer service. You can get help in person, over the phone, or online.
• Relationship banking. Traditional banks allow you to build a face-to-face relationship with the bank staff, which can make managing your finances feel more personal.

Traditional bank cons

• Visiting in person. Making a trip to the branch can be a hassle, especially if there isn’t one near you. It can also mean fighting traffic in the middle of the day, taking time off work, and waiting in long lines.
• Variable service experience. The quality of the customer service you receive can vary depending on the branch or staff.
• Higher fees and lower interest rates. Traditional banks often have high operating costs due to maintaining physical locations and staffing, which can translate to higher account fees and lower interest rates on savings.

What is online banking? It’s exactly as it sounds – banking online. When you access your bank account online and conduct financial transactions, you are participating in online banking as a consumer. Whether with a brick-and-mortar bank’s online portal or an online-only bank’s website, the process is pretty much the same.

The two main forms of online banking include:

• Online-only banks or challenger banks that offer conventional banking products and financial services but in an online-only format.
• Traditional banks that offer online banking services via an app or online portal.

Online bank pros

• Convenient and streamlined experience. If you do your banking online, there’s no traffic and no banking hours. All of your banking needs can be conveniently done from home and on your schedule.
• Lower fees. With online banking, fees are kept to a minimum because the bank’s expenses are kept in check.
• Higher interest rates. Lower overhead costs allow online banks to offer their customers higher interest rates on savings accounts than traditional banks.
• Better for the environment. By receiving all your banking correspondence by email or text, online banking drastically reduces your paper use. It also reduces the amount of air pollution caused by cars because you won’t need to drive to and from a physical location.

Online bank cons

• No physical locations. Online banks don’t have branches, which means you can’t walk in to resolve issues and get in-person assistance. If you value face-to-face interactions, this can be a deal breaker.
• Limited customer support. Though online banks typically offer email, chat, or phone support, the experience might not always be as seamless or immediate as speaking to someone in person.
• Accessibility limitations. If you don’t have reliable internet or prefer not to handle everything digitally, having an account with an online bank can feel restrictive.
• ATM fees. Some online banks have limited in-network ATMs, so you might pay a fee when using an out-of-network machine.

The major difference between online banking vs traditional banking is that online banks offer primarily mobile and online access. You won’t meet a banker face to face, but with a mobile device or computer, you can access your account anytime.

Both traditional and online banks store and help manage your money for you, but they do differ somewhat when it comes to the services, features, and capabilities each offers. Below is a summary of some of those key differences. Some banks might differ on their offers, but the following is generally the case for most online and traditional banks.

Switching to an online-only financial option doesn’t mean you lose out on ATM and debit card services. Many online accounts now offer access to a broad ATM network. Chime, for example, has access to over 50,000 ATM locations nationwide³— for free.

If you favor digital banking and prefer to conduct all your financial transactions electronically, then an online-only option can be a solid choice. Before you switch, though, look at your own banking habits and consider the pros and cons of online banking to determine if it makes sense for you.

Check out our guide on how to choose a bank if you need help deciding.