About 7% of households in American don’t have a bank account. That number is falling, but for many people, accessing basic financial services can be difficult. Steep fees, unfriendly service, and minimum balance requirements are just a few of the reasons some people choose not to use banks. Even those that have a bank may be confused about the differences between online and traditional banks.

Door of a new contemporary bankCompetition between banks is great for consumers. Many banks no longer impose minimum balance requirements. It’s easy to find a bank that doesn’t charge monthly maintenance fees, too. Having a bank account, whether it’s through a traditional institution or online, offers advantages like automatic deposit, access to a separate savings account, mobile check deposits, a Mastercard or Visa-branded debit card, and a safe place to keep your money.

A traditional bank has at least one physical location that usually includes drive-thru access to a bank teller and a 24-hour ATM machine. Many banks offer a Mastercard or Visa credit card and various loan types such as mortgages and auto financing.

Online banks operate the same way as traditional banks, but you don’t have the option of face-to-face interaction with a bank teller. They may also offer various loan products and credit cards. All your communication and money management happen online. Many online banks offer live customer service via phone, chat or text.

What to look for in an online bank

If you decide to use an online bank, choose one with the following attributes:

Low or no overdraft fees: Chime and Simple both offer checking and savings accounts that are easy to set up online and don’t impose overdraft fees. Discover Bank and Capital One 360 offer tools to help their customers avoid overdraft fees.

Zero account maintenance fees: Some banks charge fees if your average daily balance falls below a certain level. Others charge a standard monthly fee just for having the account. Synchrony Bank, American Express National Bank, and Barclays have accounts available that advertise “no monthly fees.”

ATM access: Before opening an account, find out if there are ATM machines conveniently located to the places where you spend the most time. Some online banks offer to reverse ATM fees imposed by other banks, and this is a nice perk.

If you prefer the face-to-face interaction offered by traditional banks, choose one that’s easy to access. Look around your neighborhood or in the area near your workplace for banks and credit unions that are close by.

What to look for in a traditional bank

Even if you choose a traditional bank, you can still learn a great deal about your options online. Read reviews for clues about customer service. Check the bank’s website to understand the different accounts they offer and the associated fees.

Pay close attention to the bank’s overdraft fees policies. Some banks cap fees at a certain dollar amount per day. Others happily refund overdraft fees as a one-time courtesy.

Traditional banks are closed on certain holidays and may not have weekend hours. Understand how and when you can access services at the physical location before opening an account.

Are traditional banks more secure than online banks?

Both traditional and online banks are FDIC insured and offer security for your money. Both types of financial institutions offer online banking and mobile access to account balances.

Traditional banks and online banks have the same policies about customer privacy. Both types of banks store your personal information in a data center. Choosing an online bank doesn’t open you up to different risks than banking with a traditional financial institution.

No matter which type of banking account you decide to use, realize there are many choices, both traditional and online, to choose from. Shop around and find which is the best fit for you, just like you would anything else.

May 4, 2018
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