Brick-And-Mortar Banks Vs. Online Banks: Pros And Cons

If you’re looking for a place to manage your money, you have a lot of options. There are more than 3,000 banks in the U.S. A lot of those banks are brick-and-mortar banks, meaning they have physical branches that you can visit. Some of them, however, operate solely online. 

As you compare where to open your next checking or high-yield savings account, read on to learn about the pros and cons of brick-and-mortar banks vs. online-only institutions.

Main differences between brick-and-mortar and online banks

The main difference between brick-and-mortar banks and online banks is the fact that the former has physical branch locations, while the latter usually doesn’t (though sometimes does). But those aren’t the only differences:

The pros and cons of brick-and-mortar banks

Here are some of the positive and negative aspects of brick-and-mortar banks.

Pros of brick-and-mortar banks

Cash and customer service accessibility 

Depositing and withdrawing cash is easy to do at a physical bank. You can find a branch and have a bank teller’s help, or go to a bank ATM. Most traditional banks have sizable ATM networks that customers can access locally and in other parts of the country. 

You can also always get customer service help at a branch. This is great if you have a complex problem that needs solving or just prefer to do your banking in person. But this pro is highly variable. In-branch support is only helpful if there’s a branch near you and if the business hours work with your schedule.

Digital tools

Though it may seem like online banks would automatically have the edge in digital tools for their customers, that’s not necessarily the case. Many traditional banks, especially the bigger ones, also offer top-notch online and mobile banking with sophisticated websites, highly-rated mobile apps and other digital tools. That’s because they have the resources to invest in technology and the motivation, since they are competing with online banks and their digital platforms. 

Account variety

Besides checking accounts, savings accounts, money market accounts and certificates of deposit (CDs), traditional banks offer mortgages, mortgage refinancing, auto loans, credit cards and other products. If you’re looking to keep a lot of your financial life in one place, a brick-and-mortar bank might be right for you.

In-person service

Traditional banking offers in-person service and sometimes, a personal touch. Customers can stop by their bank and talk to someone who can access their accounts and answer questions. To many people, this is more reassuring than dealing with a person on the phone. 

Cons of brick-and-mortar banks

High fees

Fees are one of the biggest drawbacks of brick-and-mortar banks, which have more overhead than online-only institutions (since they have to pay to run physical locations). Brick-and-mortar banks often charge monthly maintenance fees for their deposit accounts (though they also usually offer ways to waive the fees, too).

Low rates

Traditional banks also typically pay lower rates on deposits. The national average rate on a savings account is 0.6 percent but some of the largest brick-and-mortar banks have savings rates that are even lower — 0.01 percent at Chase Bank, for example. 

At online banks, you can find savings accounts paying 4 percent or above. Likewise with CDs. The average rate on a one-year CD is 2.03 percent, whereas top rates offered by online banks are above 4 percent for a one-year CD.

Summary of pros and cons for brick-and-mortar banks

The pros and cons of online-only banks

As opposed to brick-and-mortar banks, most online banks do not have physical locations and often offer just a limited variety of accounts. But they make up for what they lack with higher rates and lower fees. Here are some of the advantages and disadvantages of online-only banks. 

Pros of online banks

High rates 

One of the biggest draws of an online bank is the high rates. Because they don’t have branch buildings to maintain and have lower staff costs, online banks typically pay higher interest rates on deposits. Many of Bankrate’s picks for the best high-yield savings accounts are from online banks, because they offer around 4 percent APY. 

Let’s say you have $10,000 saved and plan not to touch it for a year. If the bank paid 0.01 percent APY, as many big brick-and-mortar banks do, you would earn $1.00 in interest at the end of the year.

Meanwhile, if you put that money into a high-yield savings account at an online bank paying 4 percent, you would earn $400 in interest in that same year. 

Low (or no) fees

Another way online banks attract customers and pass on their savings from not running physical locations is through low (or no) fees. For example, it’s typical for online banks to not charge monthly maintenance fees for checking or savings accounts, unlike their brick-and-mortar counterparts. There are also plenty of online banks that have gotten rid of overdraft fees, such as Ally Bank and Discover Bank.

Sophisticated online experience

Online-only banks do their business online, so they have an incentive to give their customers a good, clean experience. 

Cons of online banks

Cash accessibility is worse (or nonexistent)

Some online banks don’t offer cash withdrawals or deposits, especially if they only have a savings account and CDs in their product suite. 

If an online bank does offer cash deposits and withdrawals, it’ll likely be through a partnership with a third-party ATM network such as Allpoint or MoneyPass, or with businesses where you can deal with your cash. For example, Capital One allows cash deposits at stores like Walgreens and CVS, but the process involves getting a barcode and using the mobile app. 

Other online banks that offer cash deposits might charge a fee for the privilege, too.

If your online bank does offer an ATM card with its accounts though, there’s a chance you’ll be able to withdraw cash for free as some online banks offer generous ATM fee reimbursements.

Still, if you deal with cash a lot, an online bank might not be ideal.

No in-person service 

Most online banks don’t have physical branches, and customer service is provided by phone or electronically via FAQs on the bank website, emails or chatbots. If you want more personal assistance, not being able to see a human when you have a problem to solve might be frustrating for you.

Fewer account types

While it’s not unheard of for an online bank to offer a wide-ranging suite of services and products, most offer just a few types of deposit accounts. This might not be a drawback for you if you want to only open a high-yield savings account or CD, but if you want to do all of your banking in one place and also access services like mortgages and loans, you might have more options with a brick-and-mortar bank. 

Summary of pros and cons of online banks

Your money is safe with both brick-and-mortar and online banks

In case of a bank failure, your money is safe in both online and brick-and-mortar banks. That’s because the Federal Deposit Insurance Corp. and the National Credit Union Share Insurance Fund (NCUSIF) provide the same coverage for customer deposits at member online banks and credit unions as they do for their brick-and-mortar counterparts. 

If you’re worried about the safety of conducting your financial business online, or you’re concerned that you may have bigger risks of having your identity stolen with an online bank, you can rest easy. Most banks, online and traditional, use strong encryption, multi-factor authentication and require strong passwords to protect customers’ personal information. 

Should you choose a brick-and-mortar bank or an online bank?

Choose the bank that works best for what you need. With an online bank, you’ll be able to take advantage of more competitive APY on your savings, for example. But if your financial situation requires more personal customer service or if you handle cash often, you might opt for a brick-and-mortar bank. This is also true if you want access to more extensive products and services, like loans, credit cards, or small business, commercial and investment solutions.

Editor’s tip: Have the best of both worlds

You can have multiple accounts at different banks to take advantage of the different pros. Keep your savings in an online bank to get high rates and a checking account at a brick-and-mortar bank maintain access to in-person service or and easy cash deposits (just make sure you can waive the monthly fee for your account, if there is one). Then link the accounts at your different banks for easy transfers.

Frequently asked questions

Bottom line

For some, there may be a clear better option between online and brick-and-mortar banks, but you don’t necessarily have to choose one over the other. It could be worth it to keep one account with a local, traditional bank to take advantage of branch services and ATM networks while keeping a high-yield savings account or CD at an online bank to get better rates. In either case, it’s important to compare options between several banks to find the best rates, lowest fees and other features that work for you.