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Online Banking vs Traditional Banking: What's Your Best Option?

By Janet Siroto · July 29, 2022 · 7 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

Online Banking vs Traditional Banking: What's Your Best Option?

Deciding between an online and a traditional bank? First, let it be known that no two people’s banking styles are exactly the same. For every person who loves popping into their local branch and chatting with their favorite teller, there’s someone else who avoids bank branches at all costs, preferring to seamlessly swipe their way through financial transactions on their mobile phone.

Traditional vs. online banks also have other important distinctions, including the dollars-and-cents bottom line. Their typical fees charged and interest rates paid differ as well.

So how can you decide which kind of financial institution best suits your needs? Read on to get the intel you need, including:

•   The differences between traditional and online banking

•   How online banking vs. traditional banking works

•   The advantages of online banking

•   How to open an online bank account

Differences Between Online and Traditional Banking

Online and traditional banking both typically offer reliable ways to manage your money, but they do differ considerably in several ways. First, a little lesson in what they are:

•   Traditional banks are ones that have branches you can visit, have ATMs, and often have a website and app for conducting some business digitally. They tend to charge account fees and offer interest rates that may be lower than online banks.

•   Online banks offer many (most, even) of the same services as traditional banks, but they don’t have a footprint in the physical world. You won’t be able to visit a branch or use their branded ATMs (though they may partner with an ATM network or refund your fees). The lack of branches usually allows them to charge lower or no fees and pay depositors a higher interest rate.

Now, here’s a closer look at some key points of differentiation:


If you keep your money at a traditional bank and visit a branch, you likely feel reassured by the presence of security guards and perhaps a glimpse of a massive vault inside. You might wonder if online banking is as secure as a bricks-and-mortar bank. If you use a strong password and avoid conducting online banking with a public WiFi connection or on a public computer, you are following good advice for keeping your account safe. While there are no 100% guarantees, your money should be well protected.

What’s more, both online and traditional banks abide by the same federal regulations. This means that if your financial institution is insured by the Federal Deposit Insurance Corporation, you are covered in the event of a bank failure up to $250,000 per depositor, per account type. Want to be sure of that safety net? You can use the FDIC BankFind to make sure your online bank is FDIC-insured.

Bank Fees and Interest Rates

As briefly noted above, online banks typically save big on real estate and staffing costs and pass that along to their customers. Many charge no or low fees. Which may be a very big deal: According to the Consumer Financial Protection Bureau, Americans pay more than $15 billion a year on bank overdraft fees, which are usually $30 to $35 a pop.

Online banks also likely offer higher interest rates on saving accounts and may offer interest on checking, too. For instance, at press time, SoFi was offering 1.80% APY on savings, while Chase offered 0.01%. That’s quite a noticeable gap. So if you don’t use traditional banking services, you can probably save money and earn more interest with online banking.

24/7 Banking

A few years ago, online banks tended to have the advantage here, providing services around the clock. Traditional banks, which may only be open from 9 a.m. to 5 p.m. Monday through Friday, have been working hard to close the gap and offer services (from check deposits to money transfers) via their website or app at all hours.

Still, online banks may have the edge in terms of 24/7 support, since they have offered this kind of service from the get-go. Making mobile deposits or switching up your password at 2 a.m. is no problem for them, and if you hit a speed-bump, you can likely chat or phone your way to help.


If you’re an account holder at a large traditional bank, you’ll probably have a good number of conveniently located ATMs that you can access without a fee. However, those who bank at a smaller, local or regional institution may have fewer options. They may have to make a special trip to get to their bank’s ATM or otherwise pay an out-of-network fee.

How about online banking and ATMs? Digital banks don’t have branches, so how can they have cash machines, you might wonder. The answer is: They don’t. Instead, they usually have work-arounds in this situation. Most online banks partner with a large cash-machine network that you can use for free for withdrawals or for depositing cash at an ATM. Or they may have an arrangement that refunds you for any bank fees you incur using an ATM. Online banks tend to work hard to level the playing field on this front.

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How Online Banking Works

If you’ve been used to traditional banking, online banking may seem like a brave new world, and a somewhat intimidating one at that. In truth, however, online banking closely mirrors what happens at a bricks-and-mortar bank, minus the bricks-and-mortar and those free lollipops.

For example, you can open checking and savings accounts, get a debit card, sign up for automatic bill pay, transfer funds, and more. The one challenge can be withdrawing or depositing cash; there’s no teller service, but you may be able to manage cash at a linked ATM (as mentioned above). You may find that the pros of mobile banking and online transactions make up for this inconvenience.

If you typically go into a branch for certain services, such as wire transfers, you’ll likely find you can do them online with a digital bank. And the fact that you can do them on a website or app means the bank isn’t paying the overhead of having a bricks-and-mortar location. So you are probably earning more interest and avoid account management fees than if you kept your money at a traditional bank.

Recommended: How Many Bank Accounts Should I Have?

Advantages of Online Banking Over Traditional Banking

Here’s a side-by-side comparison of how online vs. traditional banking compares.


Online Banking

Traditional Banking

Interest rates Typically have considerably higher interest rates since they can pass along their savings on overhead to the customer Tend to have lower APYs (annual percentage yields) as they need to cover the costs of their branches and staffing
Bank fees Usually offer no fees or lower fees than traditional banks Often assess monthly account fees, minimum balance fees, overdraft charges, and more
ATMs Probably lack branded ATMs but likely partner with a network for fee-free transactions Typically have a network of their own ATMs, which may or may not be conveniently located
Customer Service Usually offered 24/7 via chat or phone Usually offered in person during business hours and by chat or phone 24/7
Security High-level online security and fraud protection High-level online security and fraud protection at large chains

How to Know if Online Banking Is Right for You

Whether you choose to bank online or with a traditional financial institution is a very personal decision. Here are a few of the most important signs that online banks will be a good fit:

•   You prioritize high interest rates and low fees to help your money grow faster.

•   You are comfortable accessing a partner network of ATMs vs. a bank’s own branded machines.

•   You are satisfied with seeking customer service via chat or phone.

•   You are confident managing your money without having a personal banker at your local branch.

•   You are digitally savvy enough to conduct transactions online; you also know not to use public WiFi or computers for banking business or else you’ll risk bank account fraud.

Opening an Online Bank Account

With online banking, you don’t have to wait until Monday morning to open a new account. You can just log on from your couch on a Sunday afternoon to start a new account and otherwise manage your money.

Technology is allowing financial companies to change the entire banking experience and improve it for customers. One of these new ways is by opening an online bank account with SoFi. With our Checking and Savings, you’ll earn an amazing APY and pay no account fees.

Better banking is here with up to 4.00% APY on SoFi Checking and Savings.


How does online banking work?

Online banking allows you to manage your money without going into a bricks-and-mortar branch. Using the bank’s website and/or app, you can spend, save, transfer funds, and conduct other business.

What are the advantages of online banking over traditional banking?

Online banking can offer several advantages: Some people prefer using a website or app vs. going into a bank branch as often happens with traditional banking. What’s more, online banking usually offers lower fees (or none whatsoever) and higher interest rates than bricks-and-mortar banks.

What is a disadvantage of online banking?

Online banking doesn’t offer the opportunity to build a personal relationship with your banking team. Also, depositing cash can be a challenge.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit can earn up to 4.00% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 1.20% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 3/17/2023. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet
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