Do you like to do your banking in person? If you’re someone who likes to visit a bank branch to manage your accounts, then traditional banking is just right for you.
However, it can be worth getting comfortable using both traditional banking services and modern financial technologies like 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 vendor 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 lets you make purchases using your phone. So, instead of tapping or swiping your card at checkout, you can just 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, plane 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 one another) on the payment device, the vendor 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 have other options too, like money market accounts (MMAs) and high-yield savings accounts (HYSAs).
Traditional banks and credit unions also issue debit cards and checks, and they are (in most cases) 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 online account or use the bank’s mobile app. By contrast, if you have an account at an online bank, you can only manage your account via a desktop computer or mobile device.
Read more: Online banking vs. traditional banking: Which one is right for you?
Digital wallet vs. bank account: Key differences
At a glance, both traditional bank accounts and digital wallets let you store and move money, but they serve different purposes. A bank account is designed to hold your money and provide core banking services, while a digital wallet is primarily a tool for making payments and managing transactions.
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.
Pros
You can pay with your phone, watch, or computer without carrying physical cards or cash
Sending money to friends and family is often nearly instant
Tokenization, biometric authentication, and device-level security can reduce the exposure of your actual card number during purchases
You can set up alerts for purchases made from your wallet
Many wallets also store loyalty cards, transit passes, event tickets, and more
Cons
Money stored in the wallet is not FDIC insured
Most wallets do not offer the full range of banking products such as mortgages, CDs, or comprehensive savings tools
You can’t use it if your phone dies
If you don’t set up adequate authentication on your phone, someone who steals your phone may be able to use your digital wallet
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.
Pros
Deposits are usually insured up to $250,000 per depositor, per institution, per ownership category
You can usually access loans, mortgages, credit cards, investment products, and financial advice through the same institution
Your money is accessible via debit card, checks, or online transactions
You can visit a physical branch to manage your money or get customer support
Many deposit accounts earn interest
Bank accounts generally come with well-defined regulatory protections and dispute-resolution processes
Cons
Opening accounts, transferring funds, or resolving issues can sometimes take longer than with digital-first services
Some accounts have monthly fees and minimum deposit requirements
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 conceal your card numbers, it’s safer to use them for checkout.
Using digital wallets for other types of transactions is mostly a matter of preference. Many people appreciate the convenience of mobile wallets, since they free you up from having to carry cards, they can be used to store important documents like event tickets, and they can also be used at ATMs.
It’s not a good idea, however, to store 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 in apps like Venmo, PayPal, and Cash App?
When to use a traditional bank account
The money you use for day-to-day spending should be kept in a checking account. That way, your money will be insured, but you can access it at any time you need to make a purchase. These accounts are also great for receiving direct paycheck 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 a certificate of deposit (CD) is a great choice, since you get insurance for your deposits and you 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, since they can help keep your financial account information secure at checkout.
To get started with digital wallets, check whether there’s 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 (FAQs)
Is a digital wallet a bank account?
No, a digital wallet is not a bank account. It’s an app 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 vendor your account number.
Can you store money 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 earn interest?
No, digital wallets do not generally offer interest on the funds you keep in your account.
