Text links are the key to getting high ranked in SEO. Search engines cannot see images, even if you put a title to your image and give it an ALT text, it only gives the search engine an idea of what you are talking about.
On the other side, text links are much better because search engines clearly see what you are talking about and what are they keywords you are being linked for. Don't forget to always add keywords in your anchor text.
Text links would be much better in terms of SEO. However, when I build links I like to use a variety of different kinds of links. For instance, have 90% text links with various anchored text, but also use some image links with your keywords mixed (the same way you would in you text links)
Text link is better than image link. Text link get fast indexing compare to images because images can be placed in different extension such as .JPG, .JPEG, .png, .psd etc. as well as its size to be more and due to this spider may get problem to index images. While text to be light weight and therefore get fast index besides it one can use text links many times in content or navigation bar. But images can not be uses many time in a single page. Therefore text link is consider better than image links.
I'm newbie in SEO and hope to get some advice from expert here. Is text link better than a image link with alternative text in term of SEO Page rank?
There's more control you can get over just a text link than an image link with an alternative text. Like, for example, text link can easy be inserted within the paragraph, which looks more viable to search engines spiders. Remember that spiders do look at the links in content as a good factor for ranking.
Moreover, just in case there's no way but to use an image link, to still benefit with the linking, an alternative text should be given in order for the spiders to properly identify what the link is about, thus helps the link be categorized better in search engine results pages.
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For SEO purposes I'd have to say a link, purely because you have the words which will act as keywords for your site. However if like humawebdesign said, you are a design, games host or something which relies heavily on graphics then clearly graphics would be ideal.
As I see it, if you have good SEO already then banner ads would be more beneficial in catching people's eyes, however if you need lots of SEO, then a text link will do you better.
Text Links allow you to have an anchor text which I have found to be much more effective than the an image link with an alt tag. But in the end, it really depends on the quality of the website that is linking to your site that makes most of the difference when in comes to both PR and SERPs.
I agree with WachaHost, the google-bot knows what text to pass along for juice whether it is an image alt or text. The page that the link is on tells how much juice to pass on, so that would be the most importain to me.
As far as SEO is concerned, text links are much better. As another poster mentioned, image links will still give you "link juice", but your url won't be linked to any particular keyword, which is after all the important thing when making sure you get high SERP rankings.
That said, traditional image links like banners and ads have other uses beyond SEO. Even if they may not be as helpful for your ranking, in the proper context they may be better to attract clicks and get traffic directly from the site the user is browsing, instead of getting traffic from searches.