Traditional vs. Digital Banks
Digital-only banks such as Monzo, Tide, and Starling are forcing traditional brick-and-mortar banks to take notice. Younger people are opening accounts at digital banks at an increased rate but many others in the UK are still hesitant to make the switch.
Traditional banks still offer a personal level of service. You know what to expect when you walk into a local Barclays or Lloyds branch. If you are debating about which type of bank to choose, here is a closer look at the pros and cons of traditional banks versus digital banks. The team at Money Trumpet have put together this handy guide.
Benefits of Using a Digital Bank
Online banking is not a new concept. Brick-and-mortar banks began experimenting with online banking products in the 1990s. However, the new millennium has seen the rise of online-only banks.
Digital banks facilitate the same banking processes that you complete at a traditional bank but with several useful advantages:
- Better interest rates
- Lower fees
Digital banks are simply more convenient for most people. About 95% of households in the UK own a mobile phone. With an account at a digital bank, you can perform all your banking from your phone or any Internet-connected device.
Banking online allows you to check your account and even make electronic deposits. Many online banks allow you to take a picture of a paper check from your phone and upload the photo. After verifying the deposit, your funds are immediately deposited into your account.
Digital banks also tend to offer better interest rates for savings accounts compared to traditional banks. An online-only bank has fewer full-time employees and propertiese, resulting in lower operating costs. This allows them to offer greater savings for customers in most situations.
Along with better interest rates, digital banks can charge lower fees. You are unlikely to incur any additional charges for standard banking tasks such as transferring money or using a cash machine.
Disadvantages of Digital-Only Banks
The main drawback to using a digital bank is the lack of personal service, which is also one of the top reasons why people choose brick-and-mortar banks. If you experience a technical issue or a banking error, you cannot talk to a bank teller and resolve the issue in person. You typically need to contact online customer support.
Many digital banks are owned and operated by existing financial institutions. However, many of the leading digital-only banks are independent companies, which can lead some people to worry about the security of placing their money with an online company.
Digital banks use the latest encryption and cybersecurity technologies. However, any organization can become the victim of a cyberattack. Despite the relatively limited security risks of online banking, the security concerns may keep you from wanting to store your money online.
Advantages of Using a Traditional Bank
Brick-and-mortar banks provide several advantages that you cannot get from a digital bank. Here are a few reasons to consider keeping your money at a traditional bank:
- Sense of security
- In-person experience
- Cash deposits
- Online banking options
Many people prefer the sense of security that comes with holding their money at a location that they can physically visit. Some people prefer the in-person experience of visiting a bank. You may feel more comfortable handling large deposits or withdrawals in person compared to a website or mobile app.
A traditional bank is also often more convenient for those who frequently deposit cash. For example, if your job includes tips or cash payments, you may find it easier to deposit your earnings at a bank instead of a cash machine.
You may also enjoy the advantages of digital banking without taking your money out of your local bank. Due to the rise of digital banks, most traditional banks offer online banking features. You may be able to check your account, complete transfers, and arrange automatic payments without going into the bank.
Drawbacks of Traditional Banking
Compared to digital banks, traditional banks tend to offer lower annual percentage rates. The operating costs for traditional banks are higher, resulting in limited savings for customers. However, some brick-and-mortar banks offer competitive rates and savings options.
You may also pay higher fees for certain banking activities. For example, many banks charge a fee when you use a cash machine operated by another bank. Online banks typically waive the fee or reimburse you.
Another potential issue is the lack of online banking from smaller regional banks. Some banks may not offer a full range of online services such as electronic check deposits. You may still need to visit a cash machine or a local bank to deposit paper checks.
Conclusion: Which Bank Should You Choose?
In the end, you should place your money wherever you feel most comfortable and consider all options when chosing your bank. If you are concerned about the privacy and security of online banking, stick with your brick-and-mortar bank. Those who prefer handling everything online may enjoy the benefits of digital banks.