When deciding on a bank to manage your personal finances, there are plenty of options to choose from. To determine how you would like to manage your bank accounts, you can decide between both traditional and digital banks. Both of these forms of banking offer different services to customers and range by their services, convenience, reliability, and more.
Traditional banks offer in-person, mobile, and ATM services to customers to access and manage their accounts. Banks such as TD Bank, Chase, and Bank of America offer some online banking and ATM services to customers, but also have physical branches for more advanced transactions.
» Related: How traditional banking works
Digital banking includes any banking transactions you can accomplish online. Online direct depositing, checking your balance on mobile applications, and transferring money between accounts online are all digital banking activities. Many traditional banks offer some digital banking services to their customers, but this does not qualify them as digital banks.
» Related: How digital banking works
Digital banks, or neobanks, are completely online and have no in-person branches to visit. These include banks like Qube Money, Ally, and GoBank. These types of banks offer a range of banking services to customers, with various benefits and drawbacks.
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Digital and traditional banks offer different options to customers as it relates to banking activities. To determine what’s right for you, here are some key differences between these types of banks:
Both digital and traditional banks range in the types of banking services they offer to customers. To decide which bank is right for you, you will first want to consider what you are looking to accomplish. Are you applying for a home or auto loan? Do you want to set up direct deposit to your checking account? Establishing what you need from your bank will help you find the best one for you.
Traditional banks are more likely to offer a breadth of services to their customers. Here, you’ll find options to open for loans, open various types of accounts, and more available all in one bank. Neobanks, however, tend to specialize in a few services and may not offer the full range you would see from a traditional bank. If you are considering a digital bank, be sure to check whether they offer the services you need before opening an account.
When it comes to customer service, traditional banking offers the valuable opportunity to meet with associates face-to-face. You can visit a local branch to carry out various transactions and meet with experts in different areas of banking in finance. If you are interested in buying a house, for example, some banks have a home lending advisor who can provide in-depth information about mortgage loans. Should you experience an urgent issue with your account, such as your information being stolen, you can meet with an advisor immediately to solve the problem.
Digital banks, however, do not provide this level of interaction because these banks are solely online with no physical branches, you are unable to meet in-person. This can be difficult for people who want to have immediate access to an associate when experiencing any issues, or anyone who is looking to receive financial advice from their bank face to face.
Digital banks offer customers the ultimate convenience: all your banking activities can be accomplished from anywhere, at any time. You are not required to alter your schedule to adhere to a bank’s hours of operation; instead, you can manage your finances from your own home. This is particularly helpful for people who don’t have time to visit a local bank’s branch during the day.
Depending on the institution, most traditional banks hold limited hours of operation during working hours. This can pose a major inconvenience for customers whose work hours overlap with their bank’s. Though you are able to carry out minor transactions from home or at an ATM machine, more complex actions require a visit to your local branch.
Due to the nature of digital banks, they are bound to experience connectivity issues at some point. Though uncommon, digital banking can be stalled if the website or mobile application you are using goes down for a period of time. If you are in need of immediate assistance, this can significantly increase the amount of time it takes to solve your issues.
Alternatively, traditional banking offers consistent reliability due to the nature of their in-person services. Should you decide to visit a branch to fulfill your needs, you will always be met with an associate.
Because of the costs associated with maintaining multiple branches and employees, traditional banks usually charge a variety of fees to customers. You can expect to pay fees to maintain your account balances, overdraft fees, and other payments that contribute to paying for your bank’s maintenance.
Neobanks have no overhead costs associated and charge little to no fees to their customers. Saving money on banking fees associated with your accounts can help you maximize your investments in the long run, allowing you to save more of your money and benefit more from interest rates.
Traditional banks reward their customers with special promotions and benefits for the varied services they offer. It’s common to receive discounts and promotions for opening new accounts, taking advantage of your bank’s mortgage or auto loans, and much more. This incentive drives more customers to open different accounts and handle all their banking in one place. Though some digital banks offer incentives for their customers, they are less likely to offer as many as traditional banks.
On average, digital banks offer significantly higher interest rates to customers than traditional banks. Because the cost to maintain digital banks is far less than traditional ones, they are able to offer higher interest rates as an incentive to open an account. Higher interest rates will contribute to higher earnings on your savings, building on your investments exponentially quicker. Some digital banks offer interest rates above 1.0% – meaning you’ll earn more from your money over time.
Both traditional and digital banks offer different benefits when it comes to their services, availability, and overall experience. To decide what’s right for you, you will want to consider all the services you want to take advantage. Understanding their unique characteristics, you can determine which options will meet your individual banking needs.