Technology has completely changed the way in which we bank in recent years. Today there are more options than ever before when it comes to where you keep your money so knowing the different types of banks and how they can fit your lifestyle is important. If this is your first foray into opening a bank account or you’re looking to change banks it can seem a bit overwhelming considering the multitude of bank varieties and brands out there today. Below is an article that will discuss the different types of banks.
Different Types of Banks
There are three major types of banks that offer personal banking: traditional banks, online banks, and credit unions. There are some major differences between these types of bank and with online-only banks entering the foray in recent years it can be a bit confusing.
Traditional Banks
These are the banks that we’re all familiar with. Large well known financial institutions who provide products such as savings and checking accounts, investment accounts, credit cards, loans, etc. These are banks like Bank of America, Chase, Citibank, PNC, Wells Fargo, etc. They are large institutions with many national branches and ATM’s.
There are some benefits to these types of banks such as easy in-person customer service, straight forward and multi-function websites, as well as 24/7 customer support on the phone. But there are a few downsides as well. Because of the size of these huge financial institutions, the customer service can be lacking, and also there are typically far more fees associated with opening and maintaining an account (like monthly minimums).
Credit Unions
Credit Unions are different types of banks in a few ways and are not banks in the same way. They are member-owned and are not for profit. So when a Credit Union is doing well it’s members benefit. But the opposite is also true.
- Member Dividends: if a credit union is doing well they provide payouts back to their members as they are non-profits and can’t turn a profit so that money goes back to the members. This can be a nice bonus.
- Lower Fee’s and Rates: because they are smaller and non-profit credit unions have lower fees and rates than traditional banks. They pay higher rates on savings accounts and have lower rates.
- A Vote: members have voting privileges when it comes to making decisions about how and when money is used by the credit union. Board members have to be voted into office but they can also be voted out if members are unhappy with what they’ve been doing. Most members will not pay attention to this sort of thing but it is an option.
- Customer Support: because they are smaller they can provide a more personalized customer service experience than large national or international banks.
But it’s not perfect. There are some downsides to using a credit union. Because these types of banks are much smaller they will have far fewer locations (usually around a specific geographic location) and may have fewer ATMs as well if not partnered with a larger bank. If you are out of town and your credit union is regional you will be out of luck to get into a branch. Also, because they are smaller and have tinier budgets, the technology provided by credit unions is usually far more outdated than larger banks. This could mean a minimally functional website, an app that doesn’t do much (or no app at all for that matter), so the user experience can be a bit less satisfying in technological terms.
Online Banks (No Physical Branches)
These are the newest form of financial institutions in today’s banking marketplace. These types of banks are intriguing for a few reasons we’ll cover here. But you should know that these banks do not have any branches at all and only conduct business online or over the phone. If this is unappealing to you an online bank would be something you should avoid.
Benefits of an Online Bank
- Zero or Low fees: the best online banks offer free checking accounts with no monthly fees, no foreign transaction fees, no ATM fees, and no overdraft fees.
- High payout rates: this is a bigger advantage to an online bank and that is they pay out better interest rates on things like savings accounts. They are able to do this because without having to invest in branch locations and employee salaries they are able to offer their clients better interest payout rates.
The downsides fro these types of banks include no in-person customer support at all but you can still call on the phone for help if you need it. Making physical deposits can be a bit more difficult if they are not partnered with another bank’s ATM network, so it’s not perfect.
Choosing a Bank Based on Your Needs
Knowing there are 3 main types of banks, you should be looking to choose one which fits your needs and lifestyle. Do you travel? Do you like to go to the bank or prefer to do things through the website or app? Is ATM access important to you? Are you interested in a credit card, mortgage, car loan, or personal loan?
You can also do all of your banking through more than one financial institution if you prefer. To save money you can open a checking account from a credit union or online bank but when it comes time to a mortgage going with a larger bank may be a better bet as they have more assets and can provide a lower interest rate.
You can always talk to a banker and see if these types of banks will work for your situation. Take into consideration a few of the factors above and you’ll be able to make the best choice for your personal banking needs.
