Understanding the Differences Between Banks, Credit Unions and Online Banking
Today's economy has created the need to understand and research the best banking methods for our personal finances.
We don't have to be experts with our money, but we do need to have some basic knowledge.
The interest rates and fees vary by institution, as does the technology and products.
Here is a rundown of what you can expect from each kind of financial establishment.
Types of Institutions
Credit Unions - a cooperative financial institution that is controlled and operated by its members, who can obtain low interest loans from combined savings.
It's more likely to offer competitive savings interest rates, and a better range of products and services.
Regulations require credit unions to cap interest on loans, including credit cards (about 18%), which gives the members a better borrowing opportunity.
Credit unions are typically smaller than banks, but have marketed themselves as providing superior member services, and being committed to overall financial wealth.
Community Banks - a combination of personal and "big bank" services that allow the customers to have a better community banking experience, and customer service interaction. They tend to offer better interest rates and specials on deposit accounts.
Community Banks are fewer in number and are less advanced in technology compared to larger institutions, but often offer better rates on loans and less banking fees.
They are owned and operated by private corporations or private investors.
National Banks - a bank owned by the government or state, or a private bank that operates nationally under specific regulations within the United States.
Other names used for them are brick-and-mortar banks or central banks.
They are more advanced in the technology of banking, offering more products like, mobile banking, access nationwide and diverse loans.
However, there is no cap on the interest rates they can charge, so it's not uncommon to see rates upwards of 30% with extra penalties and fees. In general the savings rates are much lower than those found at community banks or credit unions.
Even though national banks have more fees and costs associated with them, they do offer the convenience of 24hour ATMs nationwide, extended branch hours and 24/7 customer call centers.
It may be worth the extra fees and less favorable rates just for the convenience and accessibility.
Online Banks - these types of banks are becoming more and more popular as we move further into the internet age.
They allow customers to conduct financial transactions through their virtual bank and secure websites. Most of these banks have only a few building locations, therefore providing low overhead for the company.
They in turn pass these savings on to the customers, in the form of no account fees, sometimes double interest savings rate, and very low rates on loans or credit cards.
The paperwork is mostly conducted online and is quicker and more secure than any mailing system or original banking method.
There are no lines to stand in, or mountains of statements to keep track of. But if you are looking for a bank you can walk into and see a person face to face, online banking doesn't provide that.
Credit Card Companies - this is a new "crossover" type of banking. A few credit card companies have recently started offering online banking, savings and loans to customers who use their credit cards.
They are similar to online banks with the products and services they offer. Many of them have no account fees, and offer competitive interest rates for saving and borrowing money.
Some even offer retirement and investing accounts and services.
Basically, you get what you pay for!
All you have to do is ask around, do a little research, to find what methods of banking work best for your situation. Maybe you don't mind paying extra fees for the convenience of national banks, or you might prefer the smaller community feel with better customer service. Every financial institution has its pros and cons, you just have to try them, to see which best fits you.
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