Online, Local or National: Which Bank is Right for You?

by Emily Guy Birken · 9 comments

Banking has come a long way from the single branch brick-and-mortar offices that used to be in every town and community. ATMs, online banking, and direct deposit are all innovations that old time banks could never have imagined. On one hand, the growth of national (and global) banks has opened up many opportunities for the average checking account holder. However, small local banks is still a solid option – it just depends on what you need from a bank. If you’re looking to open a new account, it can be tough to decide whether to work with an internet only bank, a small local operation, or a behemoth national bank. Here are some of the pros and cons of each type of institution:

Online Banking

With the popularity of such online banks as Ally Bank, internet-only banking can seem like the wave of the future. And if you are looking for a place to let your money grow, online banks are definitely the best bet. Because internet banks do not have to pay for rent or tellers, they save a great deal of money in overhead. Generally, that savings is passed onto the customer in the form of higher Annual Percentage Yields. In addition, the ease of linking online-only accounts to your other bank accounts can make it a cinch to move money around. Finally, many internet banks also offer other products and services in addition to savings and checking accounts, such as mortgages, CDs, and the ability to pay bills online.

Unfortunately, internet banking seriously lacks in convenience. If you do not have a linked bank account to your online account, it is extremely difficult to make a deposit. Even with a linked account, it can take several days longer for a deposit to clear than it would in a traditional bank with branches. Similarly, withdrawals, say from your online savings account, can take what seems like forever if you’re in need of money quickly. ATM withdrawals from internet banks can often cost you fees, although some of these banks waive those fees.

Overall, online-only banks are excellent for savings accounts that you don’t intend to touch. If you are a great planner and would like to earn a return on your checking account, having an online-only checking account could be right for you. Otherwise, you may want to go a more traditional route.

Local Banks

When it comes to local banks, one of the biggest benefits you will see is more personal attention. That means that not only will you often be greeted by name when you do your banking, but it also means that there can often be less red tape and faster decisions from the local management. Since these banks are an important part of the community, they do everything they can to support that community, which means that you can feel good about the money you deposit being used to benefit your area. Also, smaller local banks tend to have smaller fees and it’s easier to work with your bank if you do incur a fee.

However, smaller banks do not have as many conveniences that the larger banks have. For example, you may have to drive to one of the few branches available to access an ATM without fees. You may also have more limited options when it comes to online and on-the-go banking and bill paying.

If you would like your money to help out your community and can plan ahead for your cash needs before traveling, a small local bank could be the right choice for you.

Large National Banks

Large banks are the best choice for individuals who need convenience and availability. While small banks can certainly offer you internet banking, large banks tend to stay on the cutting edge of technology, so that you are more likely to be able to do mobile phone banking and ATM deposits without deposit slips, for example. In addition, their large network of ATMs and branches allow frequent travelers or those who move every few years to keep continuity in their banking. Finally, large banks will often have the fastest turnaround time in terms of deposit availability.

What you sacrifice with large banks is often the kind of personal customer service that you can expect from a smaller bank. There are also more red tape for paperwork (and clearing up problems), so a large bank can leave you feeling more like a number than a person.

Deciding which kind of bank is right for you depends on what you are looking for from your banking relationship. Know your needs and habits, and you will be able to find your bank.

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  • Lawrence Iuso says:

    You should definitely stress credit unions! They can do almost everything a bank provides, but usually a low or no cost! In the interest of full disclosure, I work for a credit union, mainly because I worked for a large commercial bank for over 26 years and left because I really wanted to work for the customer (member) instead of the stockholder, who is only interested in profit at the customer’s expense.

  • Patrick R. Carlson says:

    I use all three types of banks: online, local, and national. I think each one has a specific purpose. I use online-only bank to get a better rate of return on my emergency fund. I use my national bank for ease in accessing money while traveling and for a credit card (in my experience, local banks are particularly picky in who they’ll grant revolving lines of credit to).

    A local bank is a great place for my small business as I can build a personal relationship with a person. I operate a law firm and sometime the unique financial issues facing law firms and our accounting require having a person to explain things to. It helps smooth and expedite things when you’re requesting a line of credit or other banking need.

  • lilia says:

    About a few months ago, I opened up a savings account at my local credit union and another at an online bank (had to take advantage of the higher APR). One of the best decisions I’ve made.

  • Alex says:

    A lot of people already mentioned the benefits of using multiple accounts. I personally don’t distinguish between local and national banks-as long as they have a free checking then I’m happy. I really like the higher yield on online savings though. Discover is my favorite so far, but does anyone know any higher yielding online accounts?

  • Edu @ DollarMusings says:

    We use a combination of the above. My wife and I have our ‘day-to-day’ accounts, including our credit & debit cards and mortgage with a locally-based credit union (LOVE IT!) and our longer-term savings accounts (vacation, emergency fund, new-to-us car fund, etc.) with an online bank.

    We love the ‘personal touch’ and responsiveness of our credit union… but also love the interest rate and ‘harder to get-at’ aspect of the online bank.

  • MoneyPerk says:

    I think it is beneficial to diversify in all three types as others have mentioned, and is something I do as well. I think it gives you better safety for your money, and you will never have to worry about where you are in the country!

  • Ginger says:

    I use all of the above. I have a credit union, an online bank and my husband has a national bank. It works well for us.

  • KM says:

    Local credit union all the way. There was another post somewhere about banks where I outlined the benefits of credit unions, so I won’t repeat myself, but let’s just say that the problems people have with large banks surprise me because I’ve never encountered them and from all of my experience, I will never use anything but a credit union myself.

  • Choose Financial Freedom says:

    We use a mixture of the 3. We use an online bank for a wealth coordination account…an account to use for investments and such.

    We use a local credit union for our business accounts. We also use them for our car loan. They often have better rates than the large banks.

    We use a large bank, Bank of America, for our personal accounts. It’ s nice to be able to have their ATMs all over the place whenever we need to deposit or withdrawal cash.

    Bottom line, use what works for you. But if I could choose? I like the online bank and the credit union.

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