Online Banks Vs. Traditional Banks: Which is Right for You?

Online banks vs. traditional banks

This is a guest post by Carrie Smith, the genius behind the Careful Cents personal finance blog. She’s a Certified Bookkeeper and Financial writer. She’s also a career junkie, social media addict, debt hater and food lover. Follow her on Twitter @applecsmith.

Has your bank recently raised its fees? Or maybe you’re tired of making trips to the bank? If so, you might benefit from transferring to an online bank.

I’ve made the switch, and it’s working out great so far.

I used to bank with a very large corporate bank, and I originally signed up for that account because of the cash back rewards that were offered on their debit card.

Since I was working very diligently to get out of credit card debt, I stopped using my credit cards and survived with only the debit card and cash.

After a little over a year I earned $255 in cash back rewards and thought it was great! Getting out of credit card debt while staying on budget and earning cash back was a win-win for me… until they notified me that if I wanted to keep using the debit card with rewards I would have to pay $6 a month! How crazy is that?

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So I was left with three options: (1) accept the changes and start paying a monthly fee with no rewards, (2) find a new bank that offered what I wanted, or (3) start using a credit card with rewards (which is what the banks usually push you towards).

Well, for me it was an easy decision.

I wasn’t going to start using credit cards again. Some people can handle them responsibly, but for me that doesn’t work. I also wasn’t going to just sit by and pay $72 in monthly fees, so I switched to a new online bank that offered me cash back for using my debit card.

Advantages of online banking:

Excellent customer service
Nobody likes to feel like one in a million or just a number on a page, and all the online banks I’ve encountered have stellar customer service! They are available 24 hours a day, 7 days a week – even Sundays.

No monthly fees
Online banks can pass along amazing benefits to the customers, including no monthly fees and some of the best interest rates or rewards around. They don’t have extra overhead costs associated with traditional banks, so they can pass the benefits onto the customers.

Online access anytime
If you have access to the Internet, you can access your online banking information from anywhere. Some mobile banking allows you to send a text message and receive immediate account details, no connection required.

Your money can’t get stolen
Bank robbers target local banks with physical locations, but with online banks you never have to worry that your money will be at risk. Although, to be fair, a lot of banks are FDIC insured, which means your money will be covered even if it were to be stolen. (And actually, the risk of armed robbery is pretty low in the first place, but still!)

Thousands of ATM’s nationwide
Unlike traditional banks, online banks partner with ATM providers to give you access to thousands of locations, anywhere in the country for free. ATM fees can be upwards of $5 or more, so with more locations means, no fees and better convenience.

Example: according to’s website they have 15,000 ATM’s nationwide, but PerkStreet offers 37,000.

Disadvantages of online banking:

No physical location
With online banks you don’t have the ability to walk inside or go to the drive-thru to see a teller face to face. If you live in a smaller town or city you may have developed a nice personal relationship with your banker, but you don’t have that access with an online bank.

No traditional banking methods
If you prefer the traditional way of banking and haven’t quite warmed up to the “new age” way of banking, then getting used to the idea of a strictly online bank might be difficult. With regular banks, you still have the comfort of traditional banking methods.

Processing delays
If your job doesn’t have the option to direct deposit your paycheck, you might have to mail in your check or transfer funds from another bank account. Bank to bank transfers normally take 2 business days, so if you need the funds immediately this could be a problem. However, with the help of mobile apps, this process is changing and many online banks now offer the ability to scan your check into your account with your smart-phone.

Why It Works For Me:

The last time I went into an actual bank location was when I purchased my first home, over 5 years ago. With all the paperless statements, direct deposits, online bill pay and instant transfers, the face of banking is changing. There really isn’t as much of a need to see a bank teller anymore.

The future of banking is rapidly heading towards instant access, digital accounts and exclusively banking online. And while using an online bank isn’t for everyone, for me it was the perfect solution.

What about you? Share your experiences with online banking or traditional banking (good or bad) in the comments below!

This article is part of our Credit Card Debt Resource Center.  If you’re looking for additional information about credit card debt, be sure to pay a visit!

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  • I am afraid of not having an internet connection at some point.  Or since I am a retired senior on a fixed income , that is scary.  Would Social Security send my check to an online banking establishment ?  I have many questions concerning online banking.

    • Thanks for your comment – those are really good questions. Online banking certainly isn’t the right choice for everyone. If you think you may not have a home internet connection at some point in the future, then it might not make sense to switch to online banking. As for the Social Security checks, however, you can usually set up direct deposit with an online bank. See here for more info: Let us know if you have more questions!

  • Two years have passed, and I’m sure people are getting more and more comfortable about banking online. I actually use my phone now to bank. Phone banking?