Do you like to do your banking in person? If you like visiting a bank branch to manage your accounts, then traditional banking is ideal for you.
However, it may be worth getting comfortable using both traditional banking services and modern financial technologies, such as digital wallets, which can keep your money safer. With digital wallets, you can tap your phone at checkout instead of tapping a physical card, and the provider 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 using 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, and to 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 also download other mobile wallet apps, including PayPal or Cash App.
Many different types of vendors accept digital wallet payments, including retail stores, restaurants, gas stations, and online stores. If you see the contactless symbol (it looks like four curved lines stacked on top of each other) on the payment device, the provider 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 that has physical branches.
Most traditional banks offer standard checking and savings accounts, and they may also have other options, such as money market accounts (MMA) and high-yield savings accounts (HYSA).
Traditional banks and credit unions also issue debit cards and checks, and (in most cases) are federally insured to prevent you from losing money if the financial institution goes out of business.
If you have a traditional 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. On the other hand, if you have an account with an online bank, you will only be able to manage your account through a desktop computer or mobile device.
Read more: Online Banking vs. Traditional Banking: Which is Right for You?
Digital Wallet vs. Bank Account: Key Differences
At first glance, both traditional bank accounts and digital wallets allow you to store and move money, but they serve different purposes. A bank account is designed to hold 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 |
|
|---|---|---|
|
Main purpose |
Store, save and manage money |
Make payments and transfers |
|
where is the money kept |
At a bank or credit union |
Often linked to a bank account, card or stored balance |
|
FDIC/NCUA Insurance |
Generally insured up to legal limits |
Not always insured, depending on how funds are held |
|
Access to cash |
ATMs, branches, debit cards |
Limited; some offer debit cards or cash withdrawals |
|
bill payment |
common feature |
May be available, but not always |
|
Credit products |
Loans, mortgages, credit cards. |
Typically not offered directly |
|
Payment convenience |
Debit cards, checks, ACH transfers |
Tap to pay, QR codes, peer-to-peer payments |
Pros and cons of digital wallets
Digital wallets can give you a secure and convenient way to make purchases, but they also have their drawbacks. Here’s what you should know before using one.
Advantages
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You can pay with your phone, watch or computer without carrying physical cards or cash
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Sending money to friends and family is usually almost instantaneous
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Tokenization, biometric authentication, and device-level security can reduce the exposure of your actual card number during purchases.
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You can set alerts for purchases made from your wallet
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Many wallets also store loyalty cards, public transportation passes, event tickets, and more.
Cons
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Money stored in the wallet is not FDIC insured
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Most wallets don’t offer the full range of banking products, such as mortgages, CDs, or comprehensive savings tools.
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You can’t use it if your phone dies
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If you don’t set up proper authentication on your phone, someone who steals your phone could use your digital wallet.
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Depositing cash or withdrawing large amounts may be less convenient
Pros and cons of traditional bank accounts
Traditional bank accounts are essential for many people’s money management. Here’s a look at what traditional accounts offer.
Advantages
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Deposits are generally insured up to $250,000 per depositor, per institution, per property category.
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You can usually access loans, mortgages, credit cards, investment products and financial advice through the same institution.
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Your money can be accessed via debit card, checks or online transactions
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You can visit a physical branch to manage your money or get customer service.
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Many deposit accounts earn interest
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Bank accounts typically come with well-defined regulatory protections and dispute resolution processes.
Cons
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Opening accounts, transferring funds or resolving issues can sometimes take longer than with digital services
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Some accounts have monthly fees and minimum deposit requirements
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Physical branches may not be located in your area
When to use a digital wallet
The best way to use a digital wallet is as a replacement for using your physical debit and credit cards. Since digital wallets hide your card numbers, it is safer to use them to pay.
Using digital wallets for other types of transactions is primarily a matter of preference. 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.
However, it is not a good idea to keep money in a digital wallet. While 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 on apps like Venmo, PayPal, and Cash App?
When to use a traditional bank account
The money you use for your daily expenses should be kept in a checking account. That way, your money will be insured, but you will be able to access it any time you need to make a purchase. These accounts are also great for receiving direct deposits of paychecks and making automatic payments on your bills.
For money you don’t need to spend over the next month, a traditional savings account or certificate of deposit (CD) is a great option because you get insurance on your deposits and can also earn interest.
A digital wallet is a great tool to use in addition to a traditional bank account, but not as a replacement for one. If you add your debit card to a digital wallet, you can securely use the app to make payments from 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 at least exploring digital wallets as an option, as they can help keep your financial account information safe when checking out.
To get started with digital wallets, check to see if there is already 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:
Frequently asked questions (FAQ)
Is a digital wallet a bank account?
No, a digital wallet is not a bank account. It is an application that you can use to store your debit or credit card information.
Are digital wallets safe?
Yes, digital wallets are generally safe to use because they use “tokens” for each transaction instead of showing the provider your account number.
Can money be stored in a digital wallet?
Yes, you can store money in a digital wallet. You can also send and receive funds from a digital wallet.
Do digital wallets generate interest?
No, digital wallets generally do not offer interest on the funds you hold in your account.