Which is the best for your money?

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Do you like to do your banking in person? If you are someone who likes to visit a bank branch to manage your accounts, then traditional banking is right for you.

However, it can be worth the convenience of using both traditional banking services and modern financial technologies such as digital wallets, which can keep your money more secure. With digital wallets, you can tap your phone at checkout instead of tapping a physical card, and the merchant doesn’t see your account number.

What is a digital wallet?

A digital wallet is an app that stores your credit and debit card information and allows you to make purchases from your phone. So, instead of tapping or swiping your card at checkout, you can simply open your digital wallet app and tap your phone.

Digital wallets can also be used to send and receive money, as well as store important documents and information such as membership cards, airline tickets, hotel reservations, concert tickets, and more.

If you have a smartphone, you have access to a digital wallet. For example, most iPhones have Apple Wallet, and Galaxy phones have Samsung Pay. You can download other mobile wallet apps, including PayPal or Cash App.

Many different types of merchants accept digital wallet payments, including retail stores, restaurants, gas stations, and online stores. If you see a contactless symbol (it looks like four curved lines stacked on top of each other) on the payment device, the merchant accepts digital wallet payments.

What is a traditional bank account?

A traditional bank account is an account offered by a “traditional bank,” or a bank with physical branches.

Most traditional banks offer standard checking and savings accounts, and they may have other options as well, such as money market accounts (MMAs) and high-yield savings accounts (HYSAs).

Traditional banks and credit unions also issue debit cards and checks, and are (often) federally insured to protect you from losing money if the financial institution goes out of business.

If you have a regular bank account, you can visit a bank branch to manage your money, or you can log into your account online or use the bank’s mobile app. In contrast, if you have an account with an online bank, you can only manage your account through a desktop computer or mobile device.

Read more: Internet banking vs. traditional banking: Which is right for you?

Digital Wallet vs. Bank account: Key differences

At first glance, traditional bank accounts and digital wallets allow you to store and move money, but they serve different purposes. A bank account is designed to store your money and provide you with basic banking services, while a digital wallet is primarily a tool for making payments and managing transactions.

	TRADITIONAL BANK ACCOUNT	DIGITAL WALLET
The main purpose	Save, save, and manage money	Make payments and transfer
Where the money is kept	At a bank or credit union	It is usually linked to a bank account, card, or savings account
FDIC/NCUA insurance	It is usually insured up to statutory limits	It is not always covered by insurance, depending on how the funds are deducted
Access to cash	ATMs, branches, debit cards	There is a limit; others offer debit cards or cash withdrawals
Debt payment	A common feature	It can be found, but not always
Lending products	Loans, loans, credit cards	It is usually not given directly
Easy payment	Debit cards, checks, ACH transfers	Tap to pay, QR codes, peer to peer payments

Pros and cons of digital wallets

Digital wallets can provide you with a secure and convenient way to make purchases, but they also have their drawbacks. Here’s what you should know before using it.

Benefits

You can pay with your phone, watch, or computer without carrying physical cards or cash
Sending money to friends and family is often faster
Tokenization, biometric authentication, and device-level security can reduce exposure of your real card number during a transaction.
You can set up alerts for purchases made in your wallet
Many wallets also store loyalty cards, transit passes, event tickets, and more

Evil

Money stored in the wallet is not FDIC insured
Many funds do not offer a full range of banking products such as loans, CDs, or comprehensive savings tools.
You can’t use it if your phone dies
If you don’t set up enough authentication on your phone, someone who steals your phone can use your digital wallet.
Depositing or withdrawing large amounts may not be easy

Pros and cons of traditional bank accounts

Traditional bank accounts are essential for most people’s money management. Here’s a look at what traditional accounts offer.

Benefits

Deposits are usually insured up to $250,000 per depositor, per institution, per ownership category
You can access loans, credits, credit cards, investment products, and financial advice through the same facility
Your money is accessible by debit card, checks, or online purchases
You can visit a physical branch to manage your money or get customer support
Most deposit accounts earn interest
Bank accounts usually come with well-defined legal protections and dispute resolution procedures

Evil

Opening accounts, transferring funds, or resolving issues can sometimes take longer than initial digital services
Some accounts have monthly fees and minimum deposit requirements
Physical branches may not be available in your area

When is a digital wallet used?

The best way to use a digital wallet is to replace using your physical debit and credit cards. Since digital wallets hide your card numbers, it’s safer to use them for checkout.

Using digital wallets for other types of transactions is often a matter of choice. Many people appreciate the convenience of mobile wallets, as they free you from having to carry cards, can be used to store important documents such as event tickets, and can also be used at ATMs.

It is not a good idea, however, to keep money in a digital wallet. Although digital wallets can be used to send and receive money, the funds you keep in your wallet are not FDIC insured.

Read more: Is it safe to store money in apps like Venmo, PayPal, and Cash App?

When is a traditional bank account used?

The money you use for daily expenses should be kept in a checking account. That way, your money will be insured, but you can access it whenever you need to make a purchase. These accounts are also great for receiving paycheck direct deposits and making automatic payments on your bills.

For money you don’t need to spend in the next month or so, a traditional savings account or certificate of deposit (CD) is a great choice, since you get insurance for your deposit and you can earn interest.

A digital wallet is a great tool to use in addition to a traditional bank account, but not as a replacement. If you add your debit card to a digital wallet, you can securely use the app to make payments through your checking account.

How to choose the right option for you

Not everyone is comfortable using technology to manage their finances. But I always recommend that you at least check out digital wallets as an option, as they can help keep your financial account information safe from leaks.

To get started with digital wallets, check for a wallet app on your phone, and make sure it accepts cards from your bank or credit card company.

If you need to look elsewhere for a digital wallet, try one that’s compatible with your phone: