A brick-and-mortar bank refers to a bank with physical branches as opposed to banks that are exclusively (or almost exclusively) online. The term is an extension of the description of traditional retail stores versus e-commerce businesses, like Amazon, that was popularized in the early 2000s.
The application of the phrase “brick-and-mortar” to banking has been somewhat more recent with the rise in the popularity of online banks. Online-only banks (sometimes called neobanks or challenger banks) now boast nearly 30 million customers. Still, brick-and-mortar banks comprise the vast majority of deposits and depositors in the United States. For example, Bank of America is the largest (by customers) U.S. Bank and serves about 66 million customers. That’s more than all digital banks combined.
Similarities in Brick-and-Mortar Banks and Online Banks
There are more similarities than differences in retail banking services offered by brick-and-mortar banks and online banks. Both provide similar ways to deposit, store, and spend money.
Safe Store of Money
FDIC insurance is a vital underpinning of the U.S. banking system, protecting depositors for up to $250,000 of deposits in the event of bank failure. Both brick and mortar banks and online banks have the same coverage.
Both traditional banks and online banks offer direct deposit. And both provide check deposits. The options to deposit checks may differ, though. Most larger brick-and-mortar banks offer mobile check deposits, as do online banks. But traditional banks also offer branches and ATMs for those deposits.
Most consumers spend money in their bank accounts using debit cards, online bill pay, and for a declining number, checks. Brick and mortar and online banks share at least two out of three. Check writing may be the outlier. All (or virtually all) traditional banks offer check writing.
Differences in Brick-and-Mortar Banks and Online Banks
It all comes down to branches–for better or worse. Traditional banks have them; online banks don’t. Here’s the impact.
Interest and Fees
Traditional brick and mortar banks generally charge higher fees and pay less interest. Although fee-free checking is still available through conventional banks, they usually require minimum balances or other qualifying activities to waive monthly fees. As for interest on balances, it’s anemic. Online banks often charge no monthly fees and offer higher interest on savings and even checking account balances.
For the most part, online banks are as easy as brick-and-mortar banks to get cash. The online banks typically offer large ATM networks with fee-free withdrawals. Depositing cash, on the other hand, is still the realm of traditional banks. That’s because they have branches and own ATMs. Online banks use third-party ATMs and don’t have branches.
For traditional banks, well, it’s right in the name, checking account. For online banks, it’s a mixed bag. Some offer check writing; some don’t. That explains why some online banks call their equivalent account a spending or money account. No checks.
Traditional banks offer more financial services than basic checking and savings, such as car and mortgage loans, CDs, money market accounts, and brokerage services. They also offer ancillary services, such as notary and wire transfer services. Although some online banks, such as Axos or SoFi, offer a broad range of financial services, including loans and brokerage services, many neobanks stick to the basics of savings and spending accounts.
Brick and mortar banks are simply banks with branches as opposed to banks that exist only online. That difference, though, impacts the product offerings, convenience, and the cost of banking. For more information about online banks, take a look at our article, Online Banks: What Are They and Are They Right for You?