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Learn the pros and cons between online banking versus traditional banking, and decide which is the better fit for your small business.
WRITTEN & RESEARCHED BY
Expert Contributor
Last updated onUpdated
REVIEWED BY
Lead Staff Writer
In the past years, online banking has grown more prominent, more prevalent, and has become a necessary part of managing money.
Online banks and traditional banks each have clear advantages and disadvantages. In this guide, we’ll explore the pros and cons of online banking. In general, we recommend going with one of our top online business bank account options because they have the lowest fees and highest rewards, but the choice squarely lies in what your business needs and what is available to your business.
Table of Contents
Strictly speaking, online banking is any bank account management that is done online. Transferring funds from one account to another, depositing a check digitally, or paying bills/taxes from your computer or an app on your phone all count as online banking.
Traditional banks will offer online banking services to their customers through their website and/or app, but they are not considered online banks. One way to think of it is if you can walk into a branch — it’s not an online bank.
An online bank is a bank that only offers online/mobile services to their customers. Online banks include Ally and Axos, but also more popular names from the credit card arena like Discover Bank or Capital One 360 Bank.
These types of online-only banks are rising in popularity. With no bankers to meet face-to-face, faster application processes, and easier account access than ever before, online banking is more than just a post-COVID niche. These banks are viable options for small businesses that may utilize their features if they don’t need (or want) to visit a brick-and-mortar bank building.
Online banking is similar to traditional banking. You make an account (or several), receive a credit/debit card tied to those accounts via mail or via a virtual card, and start using your funds. The best online banks offer the same level of FDIC insurance as traditional banks and include many fraud protection services that make them safe and secure banking options for businesses.
The biggest difference you’re going to run into with an online bank is that there is no physical location for you to visit. If access to real humans is important to you, an online bank is not going to be a good fit, although a good and reputable online bank will be part of an ATM network like Allpoint or MoneyPass, so you generally don’t have to worry about an inability to take cash out/put cash into your account(s). (so long as your online bank supports cash deposits).
Online banks are just as secure as traditional banks, so there’s no need to worry about that either.
The other big difference is that traditional banks are generally more established, meaning they may have more access to additional business services like lending, payment processing, or payroll. The downside is that because these banks are more established, they can get away with higher fees and fewer rewards, whereas up-and-coming online banks often offer much better checking and savings rewards like cash-back, rewards spending, and higher APYs.
Let’s dive deeper into why your small business might or might not choose online banking.
Pros
Cons
And here are some reasons why traditional banking may or may not be a good fit for your small business.
Pros
Cons
If you need more help deciding, check out our full step-by-step guide on how to choose a business bank account.
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