US banks are closing local branches at a rapid pace — here's why that could be a problem for you (and it's not just about getting cash out)

Why branches might be closing their doors

If you’ve ever noticed that online banks tend to offer higher interest rates than physical banks, there are reasons for that. One of the most obvious is that it takes a lot of overhead to keep a brick-and-mortar bank running. There’s rent to be paid, utilities to cover and a host of additional expenses.

Given the amount of customers who do the bulk of their banking online, it makes sense for some big banks to strip costs and consolidate. Plus, shutting down underperforming branches can place added focus on improving mobile platforms and taking other steps to enhance the digital experience.

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The problem with banks closing down

According to research from Self Financial, based on commercial banking data from the Federal Deposit Insurance Corporation, if current trends continue, physical banks in the U.S. could be extinct by 2041. From 2018 to 2022, an astounding 1,646 branches have closed per year on average.

Brick-and-mortar bank closures can be a huge issue. For one thing, many customers need access to physical cash, and banks are a key source in that regard. You can log into a website or mobile app and transfer money around, but you can’t press a button and have a wad of bills magically appear in your hands.

Physical banks are also needed due to the fact that not everyone has equal access to technology. People in remote areas with spotty internet service can't always rely on mobile apps or websites to complete essential transactions.

There are also certain benefits consumers get from in-person banking. If you need a document notarized, that’s a service your local bank may be able to provide. But you can’t have a document notarized via the internet — you need an actual person with a notary stamp.

Many people also rely on safe deposit boxes at banks to store important documents. An online bank can’t offer that service for obvious reasons.

Plus, some people simply prefer the comfort of being able to walk into a bank and talk to an employee in person to sort out issues or to simply get help with everyday transactions. Losing that could deal a blow to older folks in particular who may be hesitant to use technology and are used to assistance from a human.

Finally, if you’re doing a complex transaction, it can be better to do so at a physical bank than an online bank. For example, if you’re setting up multiple accounts or are doing a multi-step transfer of funds, you may want to do it in person rather than online in case things get jumbled or you hit a snag.

There's the matter of security, too

Another issue with physical banks closing down? Criminals have gotten increasingly good at stealing customers’ personal information.

In situations where you’re unsure if a text or email from a bank is legitimate, going into a physical bank to verify communications can be crucial. If those physical branches are gone, consumers may be increasingly likely to fall victim to identity theft and fraud.

Also, if you don’t have internet service at home, it may not be safe to do your banking on a public network, like the type you’d get access to at a library or cafe. So, in that situation, having an in-person banking option is crucial.