Online Banking vs Traditional Banking for Your Small Business
Yvette is a financial specialist with over 16 years of experience in consumer and business banking. Her expertise is highlighted across Fit Small Business in credit card and bank account content.
This article is part of a larger series on Business Banking.
One major difference between online banking and traditional banking is the way you can access their services. Online banks are designed for businesses that prefer to do their banking transactions electronically while traditional banks are best for businesses that need to transact in a physical branch. Online banks and traditional banks also differ in terms of fees, rates, account options, customer service, and network size.
Online Banking vs Traditional Banking at a Glance
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 | Have more account options available |
Account Accessibility | Web-based and mobile banking access and access to ATM network | In-branch access and access to ATM network, online and mobile app access is also available |
1. Monthly Account Fees
Typically, traditional banks charge monthly maintenance fees for business checking accounts, ranging from $5 to $20 or even higher. Fortunately, it’s possible to avoid these fees. A few ways to avoid paying the monthly account fee include maintaining a minimum balance, opening multiple business bank accounts, and setting up a monthly direct deposit.
In comparison, online banks rarely charge monthly fees and, if they do, the fee is likely $5 to $10 lower than traditional banks. Many online-only banks offer business checking accounts for free because, unlike traditional banks, they can operate without the additional overhead costs associated with having multiple physical branch locations.
2. Network Availability
When it comes to network availability, traditional banks offer more options because they have physical branches that allow you to make deposits and withdrawals, open accounts, and receive in-person assistance. Online banks don’t have physical locations, so you need to make all bank transactions electronically or get customer service assistance over the phone.
ATM networks for online banks usually are as large as traditional banks, offering access to thousands of surcharge-free ATMs through partner companies like MoneyPass. However, some helpful ATM features that usually come with traditional bank networks, such as same-day cash deposits and ATM account transfers, may not be available for online banks.
3. Cash Transactions
The ability to deposit cash is one of the most distinguishable differences between traditional banks and online banks. Traditional banks accept cash deposits at their branches and through ATMs. However, since online banks don’t have physical branch locations, in-person cash deposits aren’t available. Although some online banks accept limited cash deposits through partner companies, it usually takes longer to process, and this service often has fees associated with it.
Cash withdrawals are also limited if you bank with an online-only bank. For example, you wouldn’t be able to withdraw cash in excess of your ATM withdrawal limit. Typically, however, you can withdraw any amount of cash over-the-counter from a traditional bank’s physical branch. 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 money orders, 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, need access to traditional banking.
4. Interest Rates
When it comes to interest rates, online banks offer higher rates on interest-bearing accounts like savings accounts and certificates of deposit (CDs) compared to traditional banks. Although traditional banks typically offer more options for savings accounts, they typically offer lower interest rates than online banks. You’re more likely to find a business checking account that earns interest from an online bank than from a traditional bank.
5. 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 favor digital banking and prefer to process all your transactions electronically. Online-only banks are best for businesses that typically don’t handle cash transactions and those that prefer to do their banking transactions anytime and anywhere. 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 like 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 an online bank account that has monthly fees should be considered carefully. However, it’s not uncommon to find an online savings account that requires a minimum balance to avoid a monthly fee. In that case, you should evaluate 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 not available 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
The best traditional banks provide business banking at a lower cost while giving you opportunities to earn interest. It’s best to choose a traditional bank that has multiple branch locations across the country as this allows you easy access to in-person services. It’s also a good idea to consider traditional banks that offer multiple products and services, including checking and savings account options, business loans, credit cards, insurance products, and investment services.
Business owners who are looking for funding should find a traditional bank that offers financing options suitable for the business. There are several types of business loans available, such as commercial loans, business lines of credit, equipment financing, accounts receivable financing, merchant cash advance, and Small Business Administration (SBA) loans. Some traditional banks may not offer all types of business loans, so it’s important to ensure that the bank you’ll work with offers the financing products that meet your business’s financing needs.
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/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. 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.
