Banking has dramatically changed over the last few decades, thanks to technology. Because of these advancements, you have more options for where to go to manage your money than ever before.
If you are shopping around for your first bank account or thinking about switching banks, all of the options can make picking the right one for you even more difficult. However, if you understand the different types of banks, narrowing down your choices will be much simpler.
There are hundreds of financial institutions available, but all of them fall under three categories: traditional banks, online banks, and credit unions. ThePennyHoarder.com breaks down what you need to know about each type.
Traditional banks are the most prevalent financial institutions — as well as the largest. Bank of America, Wells Fargo, Citibank, Chase, and PNC are all traditional banks.
Traditional banks are popular for many reasons. They have several advantages that make money management more convenient. Some of these benefits include:
- A more extensive range of financial products, including credit cards, market accounts, certificates of deposit (CDs), loans, and more
- More physical branch locations and ATMs in the US and, in some cases, around the world
- Better access to customer service, whether it’s visiting in-person, making a phone call, or requesting assistance online
But, traditional banks also have several drawbacks, such as:
- Poor customer service, particularly at larger institutions
- Higher fees and rates, which often stem from the cost of operating a sizeable physical branch
Online banks are a recent development in the world of financial institutions. They are perfect for customers who don’t mind — or even prefer — managing their money or customer service problems online.
In the age of the COVID-19 pandemic, online banks have the added benefit of protecting yourself from transmission, since there are no physical locations. Additionally, you don’t have to worry about modified hours or going out of your way to find a branch.
Here are a few other advantages online banks have to offer:
- Competitive bank account yields, since these banks have much smaller operating costs. As a result, online banks can pass these savings on to their customers in the form of high interest rates and other benefits
- Minimal — or even zero — fees. That means no foreign transaction fees, ATM fees, overdraft charges, or maintenance fees.
Although there are many reasons why you should choose an online bank, you should also consider the disadvantages, which include:
- No access to in-person customer service
- Difficulties depositing cash, particularly if your online bank isn’t partnered with an ATM network in your area
Credit unions and banks work much the same: you can open an account, deposit your money, and withdraw it as needed. But other than that, there are many key differences. The most significant one is that credit unions are nonprofit organizations owned by the members. Banks, on the other hand, are privately-run institutions that operate similarly to any other business.
Here are a few benefits of banking at a credit union:
- You are a shareholder, which means you have an opportunity to receive dividends when your credit union does well
- Lower fees and slightly higher rates on checking and savings accounts, though these still fall short of what online banks offer
- Better customer service, since many credit unions are smaller
- You can vote to elect specific board members. The board of a credit union is a governing body that decides how the institution utilizes its funds. You have the opportunity to vote on board members to influence how you want your institution to manage its money
But, as many advantages that credit unions have, they aren’t perfect. Here are a few disadvantages to think about as well:
- There are fewer locations, so banking at a credit union may not be as convenient if there isn’t a branch or ATM nearby.
- Many credit unions aren’t current with the pace of technology. Few offer apps or mobile banking options as user-friendly as those provided by online banks or traditional financial institutions.
No matter which type of bank you choose, it should meet all — if not most — of your financial needs. Whether you need a straightforward checking or savings account, a place to take out an affordable loan, or a CD with competitive rates, there’s a financial institution out there that’s perfect for you.
- Moore, Timothy. “Here’s How to Choose a Bank Based on Your Needs.” The Penny Hoarder, The Penny Hoarder, 4 Feb. 2019, www.thepennyhoarder.com/bank-accounts/choosing-a-bank/?aff_sub2=homepage.