Need to open a bank account but confused on what type of “bank” is best for you? Big Bank vs. Online Bank vs. Credit Union – what’s the difference?  Learn the pros and cons of each type of lending institution and how to choose the best one based on YOUR wants, needs and goals from the information in this post!

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Traditional Banks

When people hear the term traditional bank, they typically think of one that has a brick and mortar presence. They also tend to think of the big four players in the industry, which are Bank of America, Citigroup, JP Morgan Chase and Wells Fargo.

Now while these are the largest players in this category, it’s worth noting that the category is very broad and includes regional banks such as Regions Financial and BB&T as well as smaller local, community and neighborhood banks.

The biggest reasons to choose a traditional bank are technology and convenience. The biggest drawbacks to them tend to be an impersonal feeling when it comes to the customer experience, fees being on the higher end when compared to other types of banks and interest rates on deposit accounts being on the low end. Now let me explain.

On the pro side, traditional banks tend to invest more heavily in technology. This means that customers tend to get a better experience when it comes to online services and mobile banking. They also tend to have a widespread physical presence whether that be in the form of an actual branch location or an ATM. For these reasons, traditional banks tend to be the go to choice for those customers who value the convenience of being able to access their money or go to a branch no matter where their daily activities or travels may take them.

Now on the downside, dealing with a big corporation can leave one feeling like a number and not a valued customer. And those fees? Well, since big banks tend to be publicly traded and their shareholders need a return on their investment, these banks look to generate revenue from things like service charges and fees.

Lastly, since traditional banks not only have profits to manage to please their shareholders, but they also have a large geographical physical presence, the tend to pay lower rates of interest to customers on things like deposit accounts and CDs. So if you’re looking to earn the highest interest rates for stashing your money in a bank account, you might want to consider the next option.


Online Banks

Online banks are those where you don’t manage your accounts via visiting a physical location. Instead, you transfer funds, deposit checks and pay your bills electronically by using a computer or a mobile device. Traditional banks and credit unions with branches typically let customers access their accounts via the internet, too. But online banks differ in that they primarily only offer mobile access. So, with an online bank you won’t meet a banker face to face, but with a mobile device or computer, you can reach your account anytime.

The biggest reason customers choose online banks is that their fees tend to be lower when compared to the other types of banks and they often pay better interest rates on banking products. But on the downside, without branches one can expect limited access to in-person help, cash can be hard to deposit and fewer one-stop-shop options tend to be available.

Now while online banks typically offer higher rates and lower fees, it’s important to note that most will still have the basic banking features you can expect to find at traditional banks, including:

A good online bank will be part of an ATM network, like Allpoint or MoneyPass, with thousands of fee-free machines nationwide. If you need to withdraw cash from a non-network machine, some online banks will also reimburse any fees the ATM owner charges.

Online banks with standard security measures are just as safe as traditional banks. Look for features such as encryption and fraud monitoring, and before you open a bank account, make sure the money is insured by the Federal Deposit Insurance Corp also known as the FDIC.

One can expect to be able to access their bank accounts and bank services wherever the internet is available. You can also expect to be able to reach customer service by phone, in many cases, 24 hours a day, seven days a week.

Credit Unions

For those who actually enjoy going to the bank and want a more personal banking experience, a credit union may be the way to go.

Similar to online banks, credit unions tend to charge lower fees and pay better interest rates on deposits than traditional banks do. But their downside tends to be that they don’t invest as much money in technology and other state-of-the-art features as traditional banks do. Given these two points, I want to highlight the main reason why people bank via a credit union.

In a credit union, as opposed to traditional and online banks, the customers are the owners. Because of this, their deposits technically represent “shares” in the credit union’s business. In fact, operational decisions at credit unions are made by a group of volunteer board members (many of whom are elected by the credit union’s members), not executives trying to put more money in their own pockets. As a result, decisions involving loan approval processes, fees, and other product details are made with the customers’ (i.e., the owners’) best interests in mind.

In addition to the above, credit unions also offer a more personal experience, which can come in handy when you’re trying to apply for a loan. At a traditional bank, the loan officer will generally run your credit and evaluate your ability to repay the loan — on paper.

With a credit union, they tend to take a more personalized approach. Many credit unions get to know their customers (and local markets) more thoroughly and take a closer look at loan applicants and their ability to repay, going beyond traditional indicators like credit score and pay stubs. In other words, a credit union is more likely to listen to your story when considering you for a loan. Which can be a good thing when it comes to being approved!


So there you have it, the difference between traditional banks, online banks and credit unions.  The bank you choose will ultimately come down to what works for you.  It could be a single option or a combination of all three.  The key take away is that there is no wrong option when it comes to picking your banking institution.  And hopefully you’re now more informed to make the selection that works for you!