Online Banking vs Traditional Banking for Your Small Business
Tricia has nearly two decades of experience in commercial and federal government lending. Her expertise is highlighted throughout small business loan content on Fit Small Business.
Ricci Recto has two years of writing experience creating digital marketing content for finance clients. She specializes in business banking.
This article is part of a larger series on Business Banking.
Today’s online banking providers offer the convenience of lowered fees, increased interest rates, 24/7 access to banking services, and other innovative features. However, they lose out on the many advantages traditional banks provide, including cash deposit support, in-person customer service, and banking product availability. To help you decide which type of banking is best for your business, we’ve outlined the main differences between online and traditional banking.
Online Banking | Traditional Banking | |
|---|---|---|
Monthly Account Fees | Lower or no monthly fees | Monthly fees up to $20 |
Network Availability | No in-person branches; ATMs available | Both in-person branches and ATMs available |
Cash Deposits | Typically not accepted | Accepted |
Account Interest Rates | Higher than traditional banks | Typically low or not offered |
Customer Service | Online or via phone | In-person, online, or via phone |
Accounts Available | Typically offer basic bank account options | Has more account options available |
Account Accessibility | Web-based and mobile banking access and access to ATM network | Access to ATM network and in-branch mobile app, and online (web browser) access are available |
1. Monthly Account Fees
Traditional banks typically charge monthly maintenance fees for business checking accounts, ranging from $5 to $15 for accounts with low transaction limits and $20 and above for accounts with high transaction limits. However, most banks let you waive monthly fees by completing specific activity requirements. Common requirements for waiving monthly account fees include maintaining a minimum balance, meeting monthly spending minimums, opening multiple business bank accounts, and setting up a monthly direct deposit.
In comparison, online banks rarely charge monthly fees, and the few that do charge $5 to $10 lower than traditional banks. Many online-only banks offer business checking accounts for free because, unlike traditional banks, they’re able to operate without the additional overhead costs associated with having multiple physical branch locations.
2. Network Availability
Traditional banks have better network availability than online banks. By providing access to physical branches, traditional banks allow you to make deposits and withdrawals, open accounts, and receive in-person assistance. Online banks don’t have physical locations, forcing you to conduct all bank transactions electronically or get customer-service assistance via phone, chat, or email.
In terms of ATM network availability, online and traditional banking providers are about the same. Online banking providers usually partner with companies like MoneyPass, Allpoint, and SUM ATM to offer their customers access to thousands of surcharge-free ATM locations. However, many ATM features that traditional bank networks provide, such as same-day cash deposits and ATM account transfers, may be unavailable for online banks.
3. Cash Transactions
One of the biggest advantages traditional banks hold over online providers is their ability to support cash transactions. Traditional banks accept cash deposits at their branches and through ATMs. In comparison, online banking providers typically are unable to accommodate cash deposits due to their lack of physical branch locations.
The few online providers that accept cash deposits usually provide the service through partner companies like Green Dot. However, depositing cash through these partner retail locations typically requires additional fees and takes longer to process.
Other providers allow cash deposits through money orders. For example, through the financial technology (fintech) solution Novo, you can deposit cash by purchasing a money order and sending it to the Novo app.
Cash withdrawals are also limited if you bank with an online-only bank. Because it only offers cash withdrawals via ATM, you wouldn’t be able to withdraw cash in excess of your ATM withdrawal limit. On the other hand, a traditional bank typically lets you withdraw any amount of cash over the counter. If you maintain bank accounts with both online and traditional banks, you can transfer funds from your online bank account to your traditional bank account so that you can make a large cash withdrawal.
Only traditional banks offer cashier’s checks, coin exchange, and the ability to purchase specialty bills. Businesses that deal with cash, especially those that need smaller bills and coins to keep in their cash register, are served better by traditional banks.
4. Transactions Limits
The business checking accounts traditional banks offer tend to set monthly limits on transactions. You would have to pay a small fee for every transaction over your monthly limit. Meanwhile, business checking accounts from online providers usually offer an unlimited number of free transactions.
5. Product Selection
The majority of traditional banks offer a full selection of business banking services, including checking, savings products like savings accounts, money market accounts, and lending products, such as credit cards, term loans, lines of credit, and commercial mortgages. Typically, online providers only offer basic business checking, although banks offering savings and lending products do exist. First Internet Bank, for example, has Small Business Administration (SBA) loans, term loans, and lines of credit on top of business checking and savings accounts.
6. Interest Rates
Compared to traditional banks, online providers offer higher rates on interest-bearing accounts like savings accounts and certificates of deposit (CDs). Online providers are also able to offer interest on fee-free business checking accounts. For instance, Bluevine offers qualified accounts 2.00% APY without charging a monthly fee. Typically, the interest-earning business checking accounts traditional banks offer charge monthly fees while earning lower APY.
7. Customer Service
Although both online and traditional banks provide customer support via email and over the phone, only traditional banks offer in-person service options. Digital banks offer web-based customer service as well as over-the-phone support. You may also find longer customer service hours at online-only banks compared to traditional banks. However, traditional banks provide several customer service alternatives—phone, web-based, and in-branch—so you have more options on which medium to use to get the assistance you need.
When To Use an Online-Only Bank
It’s best to use an online-only bank if you want to save on account and transaction fees. However, online banking isn’t a good fit for businesses that prefer in-person customer service or need support for cash transactions. If your business is used to processing electronic payments, managing accounts through a bank’s mobile app, and making bank transactions online, then transitioning from a traditional bank to an online-only bank won’t be too difficult.
How To Find the Best Online Bank for Your Business
Generally, the best online banks offer fee-free checking accounts, high-yield savings, and reliable customer support. However, if you don’t need a savings account, you should focus on unique checking account features that you can’t get from traditional banks, such as rewards on debit card purchases or a checking account that earns interest. As a business owner, you should also consider other banking products, such as business loans and payroll services, that can help you run your business smoothly.
It’s a good idea to review all bank fees that could add to your business expenses. Most digital bank accounts are fee-free, so if you’re considering a provider that charges fees, evaluate how important its additional features are to your banking experience. However, it’s not uncommon to find accounts that provide options for waiving monthly fees. In that case, you should think about how much money you could commit to keeping in your account before opening one.
Pros & Cons of Online Banks
| PROS | CONS |
|---|---|
| Low to no fees | No physical branches |
| Higher interest rates | No in-person customer support |
| Unique features, like the ability to earn debit transaction rewards from checking accounts | Cash transactions are limited |
| Allows you to bank anytime, anywhere | Fewer account options and business services |
| ATM networks available | |
When To Use a Traditional Bank
Traditional banks are best for businesses that value physical branches and personal service over digital platforms. If your business requires you to deposit cash regularly, either through an ATM or with a bank teller, a traditional bank would be your best option.
Traditional banks may also be a good fit for businesses that want a one-stop shop option for all their banking needs. Generally, traditional banking offers different products and services that are unavailable with online banking, including mortgages, business loans, leasing, different types of insurance, and investment services.
How To Find the Best Traditional Bank for Your Business
Choosing a bank for your small business is all about finding a provider that can meet all your needs at the lowest cost. When it comes to traditional banking, key factors to consider include fees, network availability, location, account scalability, and product selection.
Traditional banks with larger networks tend to charge higher fees than banks with smaller networks. If you need nationwide access to in-person banking, national banks, such as Bank of America, Chase, or Wells Fargo, are good options. However, if you’re satisfied with banking within a smaller service area, community and regional banks can give you lower fees, personalized customer service, and products that take your local market conditions into account.
It’s also a good idea to look into a bank’s product selection. The majority of traditional banks will offer basic banking services such as checking, savings, and lending, but not all offer insurance products and investment services.
Lastly, it’s best not to rely on in-person banking alone. Today’s traditional banks usually offer digital banking options, including web banking and mobile banking, to let you access your accounts on the go. If you want to supplement your banking experience with convenient digital tools, look for a bank that offers reliable digital banking. Reviews on the App Store and Google Play can usually give you an idea about the quality of a bank’s mobile app.
Pros & Cons of Traditional Banks
| PROS | CONS |
|---|---|
| Branch locations and ATMs are available | Typically charge higher fees |
| Easier cash transactions | Lower interest rates |
| In-person customer support | Clients need to transact within banking hours |
| Offers a wide variety of products | Going to the branches is an additional cost to the business |
| Accessible online through the bank’s website and mobile app | |
Bottom Line
When deciding between online banking and traditional banking, it’s important to know how they differ from one another and what advantages each type of bank could offer for your business. Digital banks provide lower account fees and higher savings rates, whereas traditional banks offer in-person customer support and a wide variety of products and services. The type of bank that works best for your business depends on your business’s unique needs and preferences.
