Traditional vs Online "Internet" Banks
What type of bank do you use?
What are Banks?
Banks have been around for hundreds of years and are fixture and symbol of the financial world in most countries throughout the world, because these financial institutions are what essentially make the world go round.
With the recent decline in the economy, many people are once again not trusting the financial institutions, much like the past generations that went through the Great Depression. With the faltering of huge financial institutions such as Fannie Mae, Freddie Mac, Washington Mutual, IndyMac, etc., people have been less inclined to keep their money with banks due to the plummeting of interest rates on savings acounts that went in some cases as high as 5% down to it interest on savings account being as low as 0.01%.
There are several types of traditional banks: Commercial Banks, Commuinty Banks, Credit Unions, Investment Banks, and more.
Recently, lets say in the last 5 years or so, there has been a surge of online banks popping upon around the internet. At first they were met with some deserved suspicion, especially with the recent economic blight. But have gained the trust of people recently and have done very well by being able to offer higher savings interest rates.
Examples of Traditional/Online Banks
Online "Internet" Banks
Bank of America
Capital One 360
Traditional brick and mortar banks have been a symbol throughout the world for many decades. They have gone through ups and downs with economic downturns and economic booms. Traditional banks have been the only way to bank since their establishment. To make deposits or withdraws you had to go into the bank or drive through the teller service in your vehicle, for withdraws you could visit an ATM, or for deposits after banking hours you could use the night deposit box.
- Ability to walk into a branch for customer service needs.
- Comfort of physical location
- Offers more banking products
- ATM/Debit Cards
- Lack of trust in recent economic downturn
- Lower interest rates on savings accounts
Types of Traditional Banks
Retail banks are the large financial institutions that directly interact with the consumer and that most people associate with the word "bank". Large banks such as Wells Fargo and Bank of America fall into this category. They offer varieties of banking products such as: checking and savings accounts, Debit and Credit Cards, Certificate of Deposits (CDs), Individual Retirement Accounts (IRAs), personal/educational/auto/home loans, and more.
Community Banks are those found within local communities and are not found elsewhere. Technically they fall under Retail Banks but worth mentioning due to the success of many community banks during the recent banking crisis. The success built by these banks are due to the trust they have built in the communities by being there for many years.
Credit Unions are similar to traditional brick and mortar banks with a few differences. One main difference is that in most cases you have to belong to a specific group that is offered membership to that credit union. And that can be anything from where you live, to where you are employed, which group you are affiliated with, and many more.
Credit Unions are for the most part local, but they are found throughout the nation.
Most credit unions offer the same banking products that traditional banks offer, but in most cases are able to offer lower rates on loans.
Checking accounts - Checking accounts are banking products that allow for direct deposits and have ATM debit cards that allow the account holder to use the card as if it were cash.
Savings accounts - Savings accounts are banking products that account holders can keep money in that will earn interest.
Certificates of Deposits - Certificates of deposits, or CDs, are banking products that allow for money to be kept in these accouts for specified amounts of time, ranging from a month to 5 years. These are interest bearing accounts, however if the money is withdrawn from one of these accounts before the maturity date then penalties will occur.
Individual Retirement Accounts - Individual Retirement Accounts, or IRAs, are banking products that earn interest and allow for individuals or joint account holders to put money in them for retirement. The work in much the same way as certificates of deposits, the difference being that the funds in the account cannot be withdrawn from the account until age 59 1/2 without penalty. There are two types of IRAs, traditional and roth.
A New Way to Stash Your Cash - Online Banks
Online "Internet" Banking
With the recent economic downturn there has been a recent rise in popularity of Online "Internet" Banks. But what are they exactly? The technical term for these types of financial institutions are direct banks. They are banks that do not have traditional brick and mortar locations for you to go, however many of them do have atms throughout the U.S.
- Ease of opening new accounts
- Many require $0 to open an account
- Low required minimum balances
- Higher savings rates.
- ATM/Debit Cards
- Less banking products offered
- No local branches