Online Banks vs. Brick-and-Mortar Banks

Many online and traditional brick-and-mortar banks share similar features. Both use apps, for example, to allow you to manage your account balances and perform basic banking transactions at home.

The best online and traditional banks also offer competitive interest rates on checking and savings accounts, although some online banks may beat even the best traditional banks in terms of interest offered.

What Are Online Banks?

Online banks are financial institutions that operate primarily, if not exclusively, online. These banks offer the same kinds of checking and savings accounts that you may find at brick-and-mortar banks. And since online banks are not required to maintain and staff multiple physical locations, they may be able to offer higher interest rates on checking and savings. The best online banks offer as much as 5% APY on accounts.

While some people are concerned about the safety and security of online banks, you can rest assured that online financial institutions are just as secure as brick-and-mortar options.

The Pros of Online Banks

• May offer higher interest rates than brick-and-mortar banks
• Can complete all bank activities from online portal or app
• Often include features like credit monitoring

The Cons of Online Banks

• May offer fewer customer service options than brick-and-mortar banks
• All banking activities, including check depositing, must be completed yourself
• May not include ATMs or easy ways to withdraw cash

Compare Some of the Best Online Banks

The best online banks offer industry-leading interest rates on checking and savings accounts and may offer an annual percentage yield (APY) of 5% or higher. To get even more out of your money, look for online banks that don’t charge maintenance fees and don’t require you to maintain a minimum balance on your accounts.

Best Online Banks for Checking Accounts

Best Online Banks for Savings Accounts

Best Online Banks for Certificates of Deposit

What Are Brick-and-Mortar Banks?

Brick-and-mortar banks are traditional financial institutions with physical locations. Account holders can enter these traditional banks and complete basic banking functions, such as check depositing, with a bank teller. Many traditional banks also provide additional services such as notarization and may give account holders the opportunity to rent safe deposit boxes in which they can securely store documents, jewelry and other valuables.

Some brick-and-mortar banks aren’t able to offer interest rates that compete with online banks, in part due to the cost of managing so many physical locations across the country. But local banks and credit unions typically allow account holders to build the kind of long-term relationships that come in handy when it’s time to apply for a mortgage or a loan.

The Pros of Brick-and-Mortar (Traditional) Banks

• Allow you to manage your banking with the assistance of a bank teller
• May include online portals or apps similar to the ones offered by online banks
• Often include features like safe deposit boxes

The Cons of Brick-and-Mortar (Traditional) Banks

• May offer lower interest rates than online banks
• Only open during certain times of the day
• Can be more time-consuming than online banking

Compare Some of the Best Brick-and-Mortar Banks

When it comes to best brick-and-mortar banks, look for banks with branches near your home or workplace. And make sure the branches are open during the hours when you are most likely to want in-person customer service. You may also want to look for a traditional bank with an app that allows you to manage your banking wherever you go.

Best Brick-and-Mortar Banks for Checking Accounts

Best Brick-and-Mortar Banks for Savings Accounts

Best Brick-and-Mortar Banks for Certificates of Deposit

Online Banks vs. Traditional Banks

To understand the differences between online banks and traditional banks, you may want to consider each feature individually. Here’s a guide to help you evaluate the various benefits that online banks and brick-and-mortar banks can offer.

Is Online Banking Safer Than Traditional Banking?

Both online banking and traditional banking are extremely safe. All reputable banks are FDIC-insured, which means that the federal government insures up to $250,000 in deposits per account holder. FDIC insurance guarantees you will not lose that money, even if the bank fails. Banks also use security tools like two-factor authentication to protect account holders who use online portals or apps—and since many traditional banks offer the same kinds of apps as online banks, everyone can benefit from these enhanced security protections.

If you are concerned about the security of your financial transactions, the best way to protect yourself is by using credit cards for purchases, especially online purchases, instead of the debit card linked to your bank account. The best credit cards offer security protections that debit cards cannot, including zero liability for fraudulent transactions. Making purchases on credit and automatically paying them off through a linked checking account—regardless of whether that checking account is with a brick-and-mortar or online bank—is one of the safest ways to shop.

How To Choose Between an Online Bank and a Traditional Bank

If you’re trying to choose between an online bank and a traditional bank, here are three questions to ask yourself:

Once you know the answers to these questions, the decision to put your money in an online bank vs. a traditional bank should be easy. Don’t forget, you can always set up savings and checking accounts at both online banks and brick-and-mortar banks—and many people choose that option to take advantage of all the benefits that each bank offers.