Mary outlined how to pick the right bank in her 2022 blog post, and I would like to provide my input from the perspective of a former banker and as the youngest member of the AFG advisory team. The way we bank continues to change as banks and consumer needs evolve. While many people still value the familiarity of walking into a bank branch and speaking with a staff member, others (like myself) haven’t set foot inside of a bank in years. The rise in popularity of online-only banks has introduced new options for managing your day-to-day finances and improved the quality of bank accounts and products – but they may not be for everyone. In this article, we will discuss online vs traditional brick-and-mortar banks and how to choose the right option for you.

Online Banks

Online-only banks¹ (often simply called online banks) are FDIC insured financial institutions that operate without physical bank branches. Their services and products are normally only accessible via phone or computer. By cutting out the overhead of the bank branches, many online banks pass the savings on to consumers by paying higher rates of interest and offering more competitive financial products. 

An online bank that many of our clients have a relationship with is Flourish. Without the overhead of traditional brick-and-mortar banks, Flourish can pay an interest rate on your savings that is much higher than the industry average (4% vs 0.38%). Flourish only offers high-yield savings accounts, but other examples of popular online banks like Ally, American Express, SoFi, and Capital One can be a “one-stop shop” by offering a full suite of banking products, credit cards, and loans. This increases convenience and simplifies your financial accounts.

Brick-and-Mortar Banks

Brick-and-mortar banks are what most people think of when you mention a bank. They are financial institutions with a physical presence that is open to the public. It is hard to believe that there are over 4,000 different banks in the United States with an estimated 65,000 individual branches. These banks span from very large, like Chase Bank or Bank of America, to very small banks dedicated to serving a single town. A few benefits to banking this way include more personalized service, cash and check handling, and peace of mind. You may also have access to a safe deposit box or notaries. It is important to note that AFG also has several notaries on staff. So, if you ever need a document notarized, please give us a call and we will be happy to help.

Brick-and-mortar banks are crucial to local economies, and I believe they will always be around. Many businesses rely on local banks for commercial lending and cash handling. As is the case with many industries, my personal experience has been that many bank branches are often understaffed, which makes them slightly less convenient. 

Deciding Factors

When deciding between an online or brick-and-mortar bank, it is important to evaluate your personal needs to make the best choice for your situation. If you frequently need cash or want the ability to speak to a person directly, you may find the convenience of the brick-and-mortar bank immensely valuable. However, while you can sometimes deposit or withdraw cash from certain ATMs with an online bank, it is generally more difficult and might result in ATM fees. If you care more about intuitive, sleek apps and websites, online banks can be more attractive. 

A few questions to ask yourself when making the decision are as follows: How comfortable are you using apps and websites for financial tasks? How often do you need in-person service? Are you earning competitive interest on your cash?

My Experience

Personally speaking, I have been using an online-only bank as my sole banking relationship for about 7 years now, but I realize it is not for everyone, and it comes with unique challenges. One challenge I faced recently occurred when my fiancée and I were purchasing our home. We had to ensure that our money was properly transferred to the escrow account for our closing, which was all to be completed through the app. When using an online bank for this type of transaction, a cashier’s check must come in the mail and a wire request is completed without assistance from bank staff.

Another inconvenience I run into often is dealing with physical cash. If I go out to eat with friends and we split the tab, sometimes I receive cash to pay for my friend’s share if I cover the bill on my credit card. I am then left without an easy way of putting the cash into my account. My bank offers cash deposits through Walgreens, but I rarely find myself doing that. I instead normally keep the cash and try to find an excuse to spend it. 

I conduct all my banking through my phone, so a bank with a great app was a decision maker for me. I also appreciate that my PlanFirst! connection easily links to my account so I can be more on top of our day-to-day finances. We sometimes find that smaller, local banks have a difficult time connecting to PlanFirst!. Although I face some inconveniences, I feel like overall the benefits of the online bank outweigh the cons for my situation. 

Best of Both Worlds

Why not have the best of both worlds? Many of our clients choose to maintain their everyday checking account/automatics accounts with a local, brick-and-mortar bank and use an online bank for their savings-to-spend account. This gives them the convenience of a bank branch, while having access to a higher yield alternative for their savings. We find this approach works great for people who are comfortable with online banking but also want to maintain a relationship with a brick-and-mortar bank.

I encourage you to evaluate if your banking needs align with your current account structure and supports your goals. As always, we are here for you to discuss.

[1] It is important to distinguish between online-only banks and online banking. Online banking began gaining popularity in the late 1990s and into the 2000s. Traditional brick-and-mortar banks normally still offer online banking services, but it is often not their sole focus.

Jake Spradlin, CFP®

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