Which Is Better for U.S. Consumers a Digital Bank or Traditional Bank?
Do a quick Google search today and you’ll find more digital banks than ever before. There are big-name banks or banks backed by the big-names, and startups no one has ever heard of, but that promise to change the way you bank.
Then there are still the traditional brick-and-mortar banks that you’ve had your money at since you had your first job.
Which is better and do you need to choose between the two?
It’s not necessarily a decision of one or the other – you can have both, or choose one. It’s up to you. No matter what you choose, consider these factors.
Is it Secure?
Online banking through Fintech firms isn’t riskier than traditional banks, even though they have that reputation. Your traditional bank can be hacked just like an online bank.
Here’s the key.
Do they have FDIC insurance? That’s all that matters. If a bank goes under or experiences a serious hack, you have protection to the tune of $250,000 if the bank is FDIC insured.
What are the Fees?
Fees are a part of banking whether you like it or not. But you can control how many fees you pay by choosing the right bank.
Traditional banks usually have a higher minimum balance or average daily balance requirements. You may need $5,000 – $10,000 deposited to avoid monthly maintenance fees or to even have an account.
Online banks have much lower deposit requirements, usually around $500. Many banks have $0 minimum deposit requirements and no fees.
Who Makes Banking Easier?
Here’s where it’s a toss-up. Digital banks are incredibly easy to bank with if you are comfortable using technology. Deposits, money transfers, and online bill pay are simple and once you do it once or twice, you’ll get the hang of it. Sometimes it takes a few tries before you get used to banking from your couch in your pyjamas.
Traditional banks usually require you to go to the bank for deposits or other bank tasks. You may do some online tasks, including mobile deposit and money transfers, but other tasks require you to come into the bank or at least go through the drive-thru.
Who Pays Higher Interest Rates?
Here’s an area that online or digital banks win hands-down. Because they have much lower overhead, they pay higher interest rates (most of the time). Today most banks can’t afford to pay very high APYs because of the Fed lowering the Federal Rate, but overall, you’ll find higher APYs at digital banks vs traditional banks.
Which Bank is Right for You?
Choosing the right bank is a personal decision. Digital banks have a lot to offer and if you’re comfortable using your computer or phone, you’ll find it easy to use. The security levels are the same as long as you bank with a reputable online bank. Ensure they have FDIC insurance and you can meet the minimum balance requirements and you’re set to enjoy an easier banking experience with higher interest rates.