The days of visiting your bank’s local branch and interacting with a teller face-to-face may be behind us. When it comes to choosing where to put their money, many Americans are switching gears and opting for neobanks.

In the U.S. and across the globe, neobanks are quickly gaining traction, especially among Gen Zers and millennials, according to United Fintech. Within one year, the percentage of these customers with a primary account at a neobank grew from 4% to 15%.

But how are neobanks different from regular banks? And how do you choose one? Let’s start with the basics.

What is a neobank?

A neobank is a fintech company that offers banking services like checking or deposit accounts to its clients through online or mobile platforms. These banks are not typically regulated in the same way traditional “megabanks” are. Unlike traditional banks or online-only banks, neobanks are often not banks and therefore do not have a bank charter with state or federal regulators. Instead, they often partner with an already regulated entity so that their deposits will be insured by the FDIC.

Neobanks first came to the forefront during the tail end of the Great Recession in hopes of appealing to customers who could stand to benefit from fee-free accounts and financial management services such as budgeting, spend tracking, and automated savings. Since then, neobanks have grown and many popular options like Chime or Acorns have become household names.

“Neobanks generally aim at providing more value and a better experience than traditional banks,” says Renaud Laplanche, cofounder and CEO of Upgrade. “They serve their customers online and through a mobile app and therefore do not incur the cost of a branch network and legacy technology, and strive to pass on these lower costs to consumers by charging no account fees and sometimes offering greater rewards on debit and credit cards.”

Neobanks vs. traditional banks

Neobanks differ from traditional banks and online banks in a few key ways. It should also be noted that some traditional banks are online-only, but these should not be confused with neobanks. For example, Ally Bank is a fully chartered online-only bank—but it isn’t considered a neobank (we’ll get into why that matters below).

While not all neobanks are identical in their offerings or structure, they typically differ from traditional banks in that they:

· Aren’t chartered with state or federal regulators like banks. When a bank is chartered, it’s governed by a state or national charter and is expected to adhere to certain rules and regulations. Chartered banks must have FDIC insurance to protect customers’ deposits.

· Lack physical branches. As a way to cut costs and cater to the digital-first consumer, neobanks don’t usually have physical locations. Lower overhead costs mean that neobanks have the ability to offer lower or no-fee products and more competitive rates.

· May offer fewer products. As a way to mitigate risk and reduce costs, neobanks may not offer the same range of products as big banks.

· Have a digital-first interface. Because neobanks operate solely on mobile and online platforms, their platforms are tailor-made for mobile and online usage. This could be a major benefit for the consumer who prefers to do all of their banking virtually.

· Must be partnered with a bank to insure customer deposits. The vast majority of neobanks are not FDIC-insured on their own in the way that many traditional banks are. Neobanks can offer FDIC-insured accounts (insured up to $250,000) if they have a partnership with an already FDIC-insured institution.

Pros and cons of neobanks

Neobanks are not for every kind of consumer. They come with their own set of pros and cons that you should be aware of before switching to a neobank.

Pro: Neobanks offer a smooth digital experience. Similar to mobile- and online-only banks, neobanks may offer a better user experience on your phone or computer. “The pros generally include a better user experience, through digitally native processes rather than analog processes that the traditional banks attempt to retrofit to a digital world,” says Laplanche.

Pro: You may benefit from lower costs. Neobanks are able to cut the cost of opening and maintaining physical locations, and as a result they often pass on those savings in the form of lower costs and fees for customers. “At a time when an increasing portion of U.S. consumers are experiencing financial stress, neobanks have helped consumers reduce banking fees and grow their money,” says Paul McAdam, senior director of banking and payments at J.D. Power. “Chime and Cash App, in particular, have grown rapidly, with awareness and market share rivaling that of incumbent direct banks Capital One, Ally, and Discover.”

Con: You may be limited when it comes to product offerings. “Neobanks build their products from the ground up and do not always offer the full range of banking products and services,” says Laplanche. “Credit products in particular are not always available, although some neobanks do offer loans and credit cards.”

Con: You might have a hard time getting ahold of a customer service representative. While physically going to your bank’s location may not be your first resort, it certainly beats being caller #64 in a customer service queue. Before considering a neobank, weigh whether or not having a face-to-face customer service option is important to you.

How to choose a neobank

When you’re evaluating different neobanks, you’ll want to consider a few different factors to determine if a specific neobank will meet your needs:

1. Ratings and review: Visit your phone’s app store to read reviews on your neobank’s app (which may be the primary platform you’ll use for your banking needs).

2. Product offerings: Your product options may be limited to a standard savings or checking account because most neobanks keep it simple. Explore the bank’s site to figure out if the products they offer will meet your needs or if you should keep digging for a bank that has more to offer.

3. Interest rates and fees: Depending on the purpose of your account, you’ll want to research each bank’s fee structure and current interest rates to determine which neobank will help you meet your goals. If the objective is to boost your savings, opt for a neobank that offers a competitive rate on a high-yield savings account or CD. If the goal is to use this neobank for your everyday expenses, choosing a neobank that offers a no-fee checking account may be more of a priority.

4. Deposit insurance: Not all banks are FDIC-insured, so you’ll want to verify that the bank your neobank is partnered with is a member of the FDIC. The FDIC’s BankFind Suite can help you determine if a bank is FDIC-insured, or you can contact the FDIC by phone to verify that that particular bank is a member.

5. Customer support channels: Do some digging to figure out what kinds of customer support options each neobank offers—like chat, phone, email, or text support, and what their hours are. In case you find yourself in a situation where you need some assistance or have questions related to your account, you’ll want to know what your options are for resolving those issues quickly.

The takeaway

Neobanks are still the new kid on the block when it comes to banking, but their digital-first approach is resonating with many consumers. Still, it’s important to properly vet the platform you plan to use to ensure that it meets all of your banking needs.