Brick and Mortar Bank Myths

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In the last few years, I’ve reviewed several online banks from the gray beard ING Direct to the more recent Ally Bank and Sallie Mae. With each review, there invariably are commenters who are totally against online banks and bring up reasons why it’s a mistake to put your money with an online bank.

They cite reason after reason that brick and mortar is better, failing to recognize that the last online bank to fail was Netbank in 2007 (and hundreds of brick and mortar banks have failed since) and that despite all their concerns, online banks are FDIC insured. Well today I’m going to tackle many of these myths head on and show why they are either wrong or grossly exaggerated.

Brick & Mortar Banks are Safer

I touched on this when I mentioned Netbank but all too often people think of brick and mortar banks, with their branches and more traditional feel, as safer. They point to the higher interest rates of online banks and can’t believe they can afford to pay them. I believe that at the core of this argument is the idea that you don’t fix what’s not broken. If my regular bank works and I’m happy earning 0% APY, then why change? OK, I can accept that, but when couched in the argument that the old way is safer, it’s just wrong.

Netbank failed in 2007, not a single penny of deposits was lost, and since then hundreds of banks have failed. All of them were traditional brick and mortar banks. People cite the recent trouble at Ally Bank, how regulators are complaining the bank is offering too high of an interest rate, and to that I say – Federal Deposit Insurance Corporation. Deposits insured up to $250,000. It doesn’t matter what the name on the front of the bank, or the bank’s website, says as long as there’s an FDIC placard.

Finally, think of it like this – I’m willing to bet you that the next bank to fail is going to be a brick and mortar bank, are you going to take that bet?

Your Money is in the Vault

The biggest myth about brick and mortar banks is that you can go to the bank and get your money if you wanted it. While this is true in normal situations, the reality is that in moments of widespread distress or panic, which are probably the scenarios you’re thinking of when you want to touch your money, you probably won’t be able to get your money.

When you deposit money into your bank account, the bank puts it in a pot and starts lending it out again. The amount they need to keep on hand is known as the reserve requirement or cash reserve ratio. If the reserve requirement is 10%, then for every $100 you deposit, the bank is only required to keep $10 on hand or at a Federal Reserve bank.

If everyone wanted to get their money out at once, in theory the bank only has 10% of it on hand to pay and could have far less, especially if much of the requirement is kept at the Federal Reserve bank.

Building a Banking Relationship

Another touted benefit of a brick and mortar bank is the myth of the banking relationship. The only difference between your relationship with your online bank and with your brick and mortar bank is that with an online bank you know you’re an account number. I’m OK with this because they pay much higher interest rates. After all, banking is about money, right?

It’s all about scale. You may have a good relationship with someone at a community bank or a local credit union, but at the commercials banks you’re a number. When you think of all the times you interact with the bank, how often do you talk to a teller versus using an ATM? How often does the teller change? What is your branch manager’s name? For most, but not all, people, you don’t know who these people are. You may have a relationship with your bank, but you’re paying for it (just compare high yield savings account rates).

There are a few other brick and mortar bank myths floating around out there but I feel these are the most prominent. Do you think I’m right? Think I’m off my rocker? Think of some good reasons to go with a brick and mortar over an online bank or some other myths you’ve seen or heard of?

{ 63 comments, please add your thoughts now! }

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63 Responses to “Brick and Mortar Bank Myths”

  1. Shirley says:

    I am all for online banking and highly recommend it.

    I need to attend to all my financial affairs from home; that means that I need paper checks on hand for immediate payment to the plumber, handyman, or electrician, etc. for unexpected repairs when they do not have credit card acceptance capability.

    My local CU checking account (SS direct deposit and online access) covers this need. Because the CU is well known in our community, the receiver knows that he/she will have no problem cashing that check. If there is ever any doubt, the CU will call me, while the receiver is present, for confirmation.

    The link between that checking account and my online accounts takes care of all my banking needs. For me, it’s the best of both worlds.

    • echidnina says:

      I agree. I love my ING checking and savings accounts, but I don’t think I could do without my B&M account. When I need to write checks, deposit cash or checks, or a few other things, it’s much easier when you have an actual branch you can go to. I use my B&M bank account less and less, and my “virtual” account more and more, but it would be a real hassle to cut it out entirely.

  2. I wonder if it’s also a worry about online banking. With all the reports of security holes, viruses and key loggers, I can understand why some would want to avoid online banks. It would be interesting to find out how many people who stay away from online banks also don’t use online banking at their brick-and-mortar banks.

    • jsbrendog says:

      this is an interesting point. While I do not agree with this line of thinking I could see how someone would be scared away from online banks (and online banking in general) for these reasons.

      • echidnina says:

        My boyfriend steers clear of any online banking because he uses a shared family computer with a history of spyware. His reasoning is, better safe than sorry. Personally, I can’t live without the convenience of checking my balance on the go – but I’m also pretty computer-savvy, and run scans regularly for viruses & spyware.

        • jsbrendog says:

          valid point. personally, I am not ok with the mobile phone banking. I did it once to transfer money when I needed to late at night but unless it is an emergency I will not do it again. just don’t trust the mobile phone security

  3. One big advantage that I could see with a brick and mortar bank is the availability of ATMs. I like to have one close to my house and at least the online bank I use does not have many available in my area.

    • tbork84 says:

      Thats true. Which is why its worthwhile in my estimation to keep a minimum balance in a brick and mortar bank and keep my real savings online where it can actually earn some interest and is readily available should I need it.

      • jsbrendog says:

        this. this reason is the only reason I still have chase. I know i will never have trouble finding an atm because not only are chase’s everywhere but duane reade’s are as well and have chase atms on site.

        i have the checking with direct deposit from work and a savings with an emergency buffer, a small amount to protect against low balances or emergencies while everything else is stored in an online savings account. The g or so in that brick and mortar savings account might not earn much if any interest but it serves as a necessary safety net since it takes a few days to get money from an online savings account.

        • ziglet19 says:

          Me too. It takes a few days to get the money if I have to transfer it from my online bank to my brick and mortar bank. For this reason, I keep a certain amount that I can access almost instantly (assuming the bank is open when I need it) in case of an emergency, but then I keep the bulk of my savings at the online bank, earning a little more interest.

      • Great point. This is exactly what I do. I have some money in my local bank for the instances when I need to get out some quick cash. Any of my real savings are in an online savings account earning interest.

    • cubiclegeoff says:

      A lot of online banks offer rebates of a certain amount on ATM fees. I rarely use my ATM, but I could use it 10+ times a month and never pay a fee, no matter what ATM I use.

    • cdiver says:

      I think if online banks refunded foreign atm fees they would get a lot more customers.

    • govenar says:

      I don’t use ATMs for withdrawals very often, and many online banks refund ATM fees anyway. But, I still have a B&M bank for deposits and for getting rolls of quarters. Another reason is that I use Wells Fargo for free stock trades, which requires that I keep a checking account there too (though I guess I could just keep a tiny amount in there and do a few transactions to keep it active).

    • Most brick and mortar banks don’t offer access to as many free ATMs as you can get access to with an online bank though most people don’t realize this.

      The truth is, US banks spend about $80 billion every year just to keep their branches open and so they can’t afford to give you much in the way of free ATMs, interest or debit card rewards.

      Also, while some banks reimburse customers for ATM fees those reimbursements are considered taxable income so they’re not really free.

      Laurie McLachlan
      PerkStreet Financial

  4. Bricks and mortar cost money, as does the land it sits on and the employees inside the bank building.

    “Money often costs too much.” ~ Ralph Waldo Emerson

  5. zapeta says:

    I haven’t gone to online only banking, I still have a local CU that I use. I am definitely a fan of the higher rates online so I keep my savings there and have the convenience of a brick and mortar bank too.

  6. cubiclegeoff says:

    My guess is that rates are low t online banks because they have fewer operating costs.

    The only reason I’d like a brick and mortar bank is to deal with loose change that I collect. Other than that, I see no reason. I use USAA and although they technically have a location, it’s on the other side of the country. I do everything my the internet (including depositing checks) and phone if necessary, can use any ATM without paying a fee, and still get great customer service. I do realize their membership is restricted, but I’m sure other banks can do the same.

    • Jim says:

      Brick and mortars have their place, I use Bank of America because their ATMs are everywhere. I just find the reasons people give for not using online banks are often misguided.

    • jsbrendog says:

      you don’t really need to have a bank just for your change management. You could roll them up (which most banks expect anyway unless they have a coinstar type machine) and bring them anywhere to exchange for cash.

      • reducereuserecycle says:

        Most of the banks I tried said you had to be a customer.

        • jsbrendog says:

          I haven’t had any trouble exchanging them for cash or using them to pay for things at grocery stores or other places of business. I bought lunch with a roll of dimes and nickels. I like to think that that is one less time the manager needs to unlock the safe to reload the registers with change. I like to do my part to help haha

  7. “Finally, think of it like this – I’m willing to bet you that the next bank to fail is going to be a brick and mortar bank, are you going to take that bet?”

    Hi Jim,

    Unfair wager. The sheer number of B&M banks makes makes your wager almost a statistical guarantee. You must offer 10,000 to 1 odds (that number is just a guess).

    I’m not disagreeing with your major premise, and I do trust online banks. But this specific argument is bogus.


  8. Lorne Marr says:

    The trend is even brick and mortar banks are trying to push you into online management of your account. But there is still lot of people, who just don’t feel confidence (and maybe sometimes don’t have the skills) to trust the bank if they don’t have eye-to-eye contact.

    • jsbrendog says:

      i think it is more confidence than skills. society just seems to be afraid of change and a huge percentage of people using B&M banks are older and might not be completely comfortable integrating their whole life with the internet.

      • cdiver says:

        I think the baby boomer generation and those before them are definitely struggling with the idea of living electronicly.

        This too will change.

        • Shirley says:

          At 68 I am just a bit older than the baby-boomers and a good deal of my life is online.
          I also “clean up” discarded computers to donate.

          Granted, the hubby at 72 is not interested in doing ANYTHING online. It’s mostly a matter of not having the self-confidence and a willingness to learn something new and that too is changing quite rapidly. It’s a whole new world out there for us! 🙂

  9. Alan Zheng says:

    In regard to the ATM issue, ING has free ATM transactions at ANY 7-eleven in the US. I think that’s good enough for me 🙂

    especially considering if you’re with a local bank and you travel out of state and have no access to that particular bank. 7-Elevens however are EVERYWHERE 🙂

  10. Mark says:

    Like most people here, I am a hybrid bank user. Majority of my money sits in online banks, while I keep a Brick&Mortar account at the local CU so I can easily deposit checks, rolled coins, and have access to a free ATM within walking distance of my house. I have been doing this for 5 years now and its the way to go. Plus I have discovered from a security perspective, my online bank had better customer service than my B&M bank.

    • cdiver says:

      I find that the online banks are easy to use for transferring money from one B&M to another. Many B&M charge fees to do this but online banks will let you do it through them for free. It usually takes an extra couple of days because you have to do two transfers compared to just one with a fee.

  11. Chuck says:

    I have a good relationship with my local credit union. When I bought my house, I deposited a $40,000 check that I wanted to write a bunch of small checks against. They said it needed a 10-day hold because it was so large (something about terrorism). I said “really???” And they said, “Ok, we know you’re good for it. We’ll make it immediately available.” And that was it.

    I can’t get Bank of America to waive a six dollar (!) cashier’s check fee, but don’t discount the person-to-person relationship you can have with a small bank or credit union.

  12. ziglet19 says:

    I think all the points you make are valid. It seems like the people I know who have a problem with online banking are definately from an older generation, and jsut prefer the feeling of walking into the bank. It seems to give them more of a feeling of security.

  13. Greg says:

    You don’t need a brick and mortar bank to have access to ATMs. Alliant Credit Union has over 80,000 ATMs in the US and I can deposit checks at home with my scanner. I’m over 1000 miles from the nearest Alliant branch location and have no need to walk into physical building.

  14. CK says:

    Can we still call these High Yield Savings? The best is in the 1-2% range.

  15. Marilyn says:

    I’m really into online banking although by nature, I’m a little wary of not keeping things local. First, I don’t have a traditional job and much of my money does not come in the form of direct deposit, which means that I have to go to the bank and stand in a line to deposit it. With online banking, I mail it. Currently I don’t have an account that lets me scan to deposit but online banks are beginning to surpass brick-n-mortar in most services so I expect this to become more widely available. I don’t pay ATM fees for my accounts because the banks either forgive all or most of them (I’m very careful with the accounts that don’t forgive them all). Reduced access to my money helped me save more easily. If I didn’t have an ATM card for my online savings account, I couldn’t raid it. For those worried about needing paper checks, all of my online checking accounts do have paper checks. It’s not all processed electronically. I can pay any bill I want with a paper check. Finally…my brick and mortar bank used to be known for high fees but outstanding customer service. Then they merged with another bank beloved by its customers. Now the lines are long, they’ve had data security breaches, and customer service has decreased. I’m lucky enough to live in a place that has a bank chain that offers “free” coin counting and exchange (“free” in quotes because it’s been discovered their coin counting machines are sometimes not accurate). On every single count, for me, online banking is preferable.

    • Shirley says:

      You wrote, “For those worried about needing paper checks, all of my online checking accounts do have paper checks. It’s not all processed electronically. I can pay any bill I want with a paper check.”

      I know that most bill-pay services will send a paper check to an individual at your request. But do you have paper checks physically in your hand to fill out and immediately hand to the occasional repairman, paper carrier, etc.?

  16. eric says:

    Good points for sure. I only keep a B&M bank for easy access pretty much.

  17. Boris says:

    One advantage B&M banks have that online banks will never match are safe deposit boxes. If you have valuable documents such as passports, deeds, birth certificates or pictures that you cannot afford to lose a B&M bank offering SDBs is a necessity. In addition, B&M banks and credit unions can provide signature guarantees, a service that probably will never be available online.

    While my wife and I keep most of our funds in online banks and credit unions, we do enjoy doing some business with a small local bank because everyone there knows us by sight and we have known the tellers for years. We keep emergency cash there and a CD or two. While we could earn more online the personal service we receive locally is worth paying for in our opinion.

    Many online credit unions are affiliated with other credit unions and ATM chains nationwide so today it’s possible to do business with a distant credit union through a local affiliate. We reside on the west coast and our main credit union is in the Chicago area; nevertheless, we have at least two local credit unions through which we can do walk-in business with our Chicago credit union, plus a dozen or so no-fee ATMs within a few miles of our home.

    Over the last few years we have had funds at the banks that have failed. All of them were B&M banks but our connection with them was strictly online. We didn’t lose a penny thanks to FDIC insurance.

    Online banking is a wonderful innovation in our opinion because it provides a large selection of banks and credit unions to choose from rather than the slender pickings all but the largest cities offer. Online banking permits us to shop around for the best deals on CD rates – 24/7 – without leaving home.

    • cdiver says:

      B&M can also help with Official Checks, Foreign Currency, and manyother things that you can not get through the online banks. Though many people never need these.

    • ziglet19 says:

      We recently got a safe deposit box, and I was surprised that many local branches (mostly in fairly new buildings) did not have any and had to refer us to branches about 20 miles away (and we live in a city of about 300,000). There sure aren’t as popular as they used to be, but they definately serve a good purpose.

  18. BrianC says:

    I’ll have to pass on this article to my mom. She says she’d like to earn some interest on her savings, and refuses to even consider an online bank–even with B&M rates hovering near zero.

  19. Guy G. says:


    my wife has a lot of patients who pay with cash.
    Depositing these funds and having someone count and verify the amount in front of her is the only feature of the brick and mortar banks she likes. The ING savings account interest rates are much better, and the fees are nil.

    Man do I hate paying a fee to store my money.



  20. Craig/FFB says:

    I’ve had all sorts of customer service from my brick and mortar account going from great to indifferent that I even exist. This is one bank mind you. At my online bank, ING – Always great customer service!

  21. Susan says:

    I have been hesitant to open an online banking account, but all your enthusiastic comments have convinced me to do so.

  22. @Susan:

    That is fantastic news.

    As so many people pointed out here, there are a lot of good options.

    Of course, I hope you’ll consider choosing PerkStreet but moreover, I’d love to learn about how you ultimately make your decision and what’s important to you in an online banking provider and account. If you are interested in sharing your thoughts on that, email me directly at

  23. Lori says:

    I have been thinking about the online banking, but did not have info. Thanks to this write up, I strongly feel the need to open an account. Having previously heard about ING and USAA, I believe I am leaning toward them. I have never heard of Perkstreet, but will pull the info after sending this.
    Thanks to all,

  24. @Lori:

    If you have any questions about how PerkStreet compares to ING and USAA, please email me ( Good luck with your decision and I’m glad you’re giving online banking a try.

  25. Banking Nerd says:

    It’s strange to compare Ally Bank with Ingdirect because both run the same back end banking software and therefore are both (for the most part) subject to the same types of banking hiccups.

    Most of the big online banks use the same core system for processing their transactions.

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