Online vs. Brick-and-Mortar Banks

I remember when online banking first gained my attention. It was 2002 into 2003, I was still in college, and the idea of handing over money to some entity in “the cloud” seemed absurd to most people.

I actually had an account at Netbank at that time, which for reasons I don’t even remember was eventually closed and I was locked out from opening another one. The bank laterย failed in 2007, due in large part to the lack of capital provided by my account. ๐Ÿ˜‰

Fast forward about eight years, where it seems like anyone with an Internet connection has at least heard of Ally and ING, or one of many other online banks that have popped up.ย Many of my friends had accounts at these banks before I even became re-interested in online banking in 2009.

I’ve considered switching to online-only banking for nearly five years, but for a lot of reasons, I’ve decided not to do it…yet. Let’s look at what I think are some of the pros & cons of online and traditional banks.

Advantages of Brick-and-Mortar Banks

Brick-and-mortar banks, or what most people think of as the “traditional” bank is any bank with branches located locally or nationally that you can visit and conduct business in. While some online banks also have limited branch presence, the number of branches is really the threshold here. Some examples of brick-and-mortar banks include Bank of America, Wachovia, WellsFargo, and Chase. Here are a few of the advantages I can think of for holding on to your traditional bank account:

  1. Traditional banks offer personal service because tellers and other bankers often get to know you and your needs. With local banking, there’s also an opportunity to get to know decision-makers personally and use that to your advantage.
  2. Deposits and withdrawals are faster, allowing for quicker posting of checks, ability to deposit cash, and withdraw large amounts without a problem. As ATMs become more sophisticated and are able to accept deposits, I think online banks will soon catch up in this area.
  3. Physical banks offer accessory services, such as safe deposit boxes, investment accounts, mortgages, and more. On the other hand, online banks usually stick to a couple of things they do best.
  4. Brick-and-mortar banks offer business checking, something that the online world is still catching up to.
  5. People have a sense of security about their money with physical banks. Maybe it’s the thick-walled architecture, or the idea that they can go somewhere locally for their money, but there are many people who simply don’t like the idea of their cash “living in the cloud.”

Advantages of Online Banks

Online banks are any banks that do most or all of their business exclusively through the Internet. Some may have several branches, such as at their regional headquarters, but many don’t have any. A few examples of online banks include ING Direct, Ally Bank, and Everbank. Here are some of the advantages I thought of when considering online banks:

  1. In most cases, the interest rates will be exponentially higher, even on entry-level accounts, than anything your traditional bank can offer.
  2. Similarly, online banks are less likely to charge you strange fees, which I’m getting more and more of with my traditional bank.
  3. The experience of online banking is always the same, no matter where in the country or the world you happen to be. You can log on & take care of business as if you were home.
  4. Customer service is usually available 24/7, and the hold times often blow traditional banks out of the water. That means if you ever need help, it’s a simple phone call away.
  5. Banking online puts an additional layer of separation between you and your money by requiring more time to access it. If you have online savings only, getting to your money might take longer than if, let’s say, you have both checking and savings. Either way, this can be a good thing, since you need to consider large spending decisions carefully. Having a credit card might help in emergencies.
  6. Very often, there are no account minimums to open or maintain an account in good standing, and without getting charged a fee. Since the bank’s overhead on these accounts is so low, they’re able to maintain accounts with minimal balances at no charge.
  7. Account setup is typically easier than traditional accounts. Most of the work can be done from your browser in less than 10 minutes, with paperwork coming to your house within a few days. A lot of traditional banks also have online applications, but I’ve found them to fall short.
  8. Banking online makes you cool. Seriously, try paying someone with a check from ING, Ally, or even E-Trade. They’ll take notice. ๐Ÿ˜‰

Where There’s Really no Difference

Given all the advantages of each, there are a couple of areas where both types of banks are simply equal in my mind, such as:

  1. The functionality of each bank’s checking account is the same. After all, a checking account is a checking account–there are only so many things you can do with it.
  2. The safety of your money is the same. As long as a bank is FDIC-insured, there’s really no reason in my mind to worry about banks failing. Identity theft is also not a concern for me–after all, the big banks store your data on computers, too!
  3. Online banking systems are nearly identical. Though “online banks” boasted impressive interfaces for a while, traditional banks have quickly caught up, and most “mega-banks” now offer online functionality that is equal to their online-only counterparts.

What’s Your Take?

This is one topic where everybody’s got an opinion–what’s yours? How do you bank currently and why? Have you ever through about switching and why? If you’re still “on the fence,” what would it take to convince you?

Stay tuned for next week’s post, where I’ll take a look at local vs. national banks and compare their benefits.

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7 thoughts on “Online vs. Brick-and-Mortar Banks

  1. I’ve got a Bank of America and an ING account, and there’s no doubt that the ING account is better. There are a few disadvantages to online banks though.

    One thing I like more about Bank of America is the fact that they’ve got ATMs everywhere.

    The other is that it’s hard to deposit checks for online banks. It’s actually a really big hassle, but I anticipate them coming out with some picture-taking iphone app soon that will let me deposite my checks from my couch, which will bring me one step closer to leaving BOA forever.

    1. Agree–I’m hoping that we’ll be able to deposit checks in much the same way my Wachovia ATM takes them in now. That and the availability of business checking, and I’ll be switching 100% too! ๐Ÿ™‚

  2. I think you make the strongest point for online banks in your first bullet “the interest rates will be exponentially higher.” For this reason alone it makes sense to have an online bank account if only to have a place to transfer one’s emergency fund or other long-term savings.

    You are leaving out an important alternative. You discuss the corporate banks but omit the local credit union. I love my local credit union. The customer service is phenomenal, and currently it pays a higher interest rate than either my ALLY or ING accounts.

    1. And completely intentionally, too… ๐Ÿ™‚ I wanted to devote an entire post to community banking next week. I’m really surprised that your credit union’s paying out that well! Our local union has a crappy 0.05% rate right now, when before they were at least somewhat competitive.

      I don’t know if I would agree with you on the interest rate for checking (on an average $1,000 balance, the benefit is only $10 a year), but for long-term savings like you point out, it’s definitely a big advantage. That’s part of the reason I have my checking locally and savings online.

      Thanks for stopping by!

  3. Personally I have 2 accounts, 1 at an online bank and 1 at a brick and mortar bank. The sense of security from a regular bank account gives me more peace of mind while I use my online bank as a backup account.

    Th interest rate is higher online, but I feel more comfortable being able to walk into a building and make a cash deposit.

  4. Great article! I think this is something that the younger generations will have an easier time with. I do all of my banking online, but my parents (who are in their 60’s) are afraid to do any banking online, afraid of security.

  5. I can’t even remember the last time I went into a bank. I use Charles Schwab and I get free ATM withdrawals anywhere and I just mail in my deposits. I never have any lines. I love it!

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