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Financial Institutions: The Different Types For Your Bank Accounts

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There are many different purposes for having a relationship with financial institutions.

Checking accounts.

Savings accounts.

Certificates of deposit.

Emergency funds.

Holiday savings accounts.

Running payroll.

What type is the best bank for your money?

The thing that many people struggle with is which of the different types of financial institutions are the “best”.

Do you open an account with a large national bank with locations everywhere?

What about the small local/community bank with only one location but makes you feel “special”.

How about a credit union that you can have “ownership” in just by being a member?

In order to answer that question, you first need to understand what the pros and cons of each of these types of financial institution.

There are several factors that go into determining the label of a financial institution, such as the size of its asset base and geographic area but we’ll stick with the simpler–and more common–method of using regions served for our discussion here.

Let’s take a look at the different options we have for where to keep our bank accounts.

Black man making a mobile check deposit to a bank account at his preferred financial institution
There are many types of financial institutions fighting for your bank accounts…each type has its pros and cons and you should have all of the info you need to make the right decision for you.

National Banks

National banks are those banking institutions that you know you will be able to find regardless of (almost) anyplace you go in the country.

They are generally publicly traded companies, meaning the emphasis is transaction-based rather than relation-based in order to show a return to and satisfy the shareholders.

Many people find them attractive because they have practically any account type you need and are literally everywhere.

Some people point to corporate greed as a reason to “hate” big banks, but what people also fail to realize (or admit) is the fact that big banks also are some of the most charitable companies.

Advantages of National Banks

  • Conveniently located
  • Can handle practically any transaction
  • No membership required
  • Online & mobile banking superior to most other options
  • You can have everything “under one roof” if you prefer

Disadvantages of National Banks

  • Customer service lacking compared to smaller banks
  • More + higher fees
  • Stricter rules for lending & heavy reliance on FICO scores alone
  • Interest-bearing accounts pay the lowest rate of all banking options
  • High minimums to avoid fees

Regional Banks

Unlike national banks, regional banks serve a smaller area.

While not as small as local/community banks (which we’ll address in a bit), regional banks tend to serve multiple metropolitan areas and even operate in multiple neighboring states.

In fact, most regional banks have a lot more in common with the local/community banks than national banks.

People who prefer regional banks generally feel they are more customer-oriented and integrate better into the communities in which they exist vs. larger “corporate” banks.

Advantages of Regional Banks

  • More community-minded, knowing what the people of the community need
  • Generally lower lending rates and more flexibility on approvals (not just FICO score)
  • Interest-bearing accounts pay more than national banks
  • Generally have less and lower fees
  • Able to provide a more personal experience
  • Provide more stability as they are less likely to participate in risky investments (ie: derivatives)

Disadvantages of Regional Banks

  • Can be lacking in technology (ie: online and/or mobile banking)
  • Might not be convenient for people who travel out of state
  • Interest-bearing accounts generally pay less than online banks
  • May have less variety when it comes to types of accounts

Local Bank/Community Bank & Trust

Scaling down even further, but very similar in terms of benefits and drawbacks, we have local/community banks.

Most people would describe these institutions as generally serving a specific community or a very tight geographic area (although there are other criteria as well)

They are more commonly privately owned and focused on relationships rather than transactions.

Advantages of Local/Community Banks

  • More community-minded, knowing what the people of the community need
  • Generally lower lending rates and more flexibility on approvals (not just FICO score)
  • Interest-bearing accounts pay more than national and regional banks
  • Generally have less and lower fees
  • Able to provide a more personal experience
  • Provide more stability as they are less likely to participate in risky investments (ie: derivatives)

Disadvantages of Local/Community Banks

  • Can be lacking in technology (ie: online and/or mobile banking)
  • Might not be convenient for people who travel or don’t live and work in the same area.
  • Interest-bearing accounts generally pay less than online banks
  • May have less variety when it comes to types of accounts

Credit Unions

Similar to the local/community banks, credit unions are touted as being more consumer-friendly and easier to work with.

Many credit union customers will swear by them and claim they “will never go back to a large national bank”.

That may be a little over the top, but in general credit unions do have devoted fans.

One of the things that make credit unions unique is the variety of sizes they come in–some are specific to a community while others serve customers nationwide.

Advantages of Credit Unions

  • More customer-centric
  • Generally lower lending rates for members
  • Higher rates than national banks on interest-bearing accounts
  • Less strenuous lending guidelines
  • Generally have less and lower fees

Disadvantages of Credit Unions

  • Can be lacking in technology (ie: online and/or mobile banking)
  • Not all are open to the public (ie: military, religious- or profession-based CU’s)
  • Might not be convenient for frequent travelers who need access to branches
  • Interest-bearing accounts generally pay less than online banks
  • May have less variety when it comes to types of accounts

Online Banks

Online banks have been around for a couple of decades now.

I remember going back to the late 1990s when the likes of ING Direct, HSBC Direct, and Emigrant Direct were paying 4-6% APY on savings accounts.

People might not realize that these banks, although “online-only” are actually offshoots of traditional big banks.

They are just as secure and are covered by the same FDIC insurance as their brick-and-mortar “parents”.

Advantages of Online Banks

  • Generally no fees for accounts
  • No/low account minimums
  • Low maintenance fees (if any)
  • Much higher interest rates for savings accounts & interest-bearing checking accounts

Disadvantages of Online Banks

  • No ability to get a cashier’s check or bank check
  • No cash transactions
  • No local branches for people who/need like face-to-face service
  • Transfers can take a day or more
  • Many don’t do business accounts so you may have to have multiple banks if you have a small business

Wrapping Up

Everyone is going to have different banking needs.

Everyone is going to want different features in their bank.

Everyone is going to have different opinions of each type of bank.

What you need to do is figure out your needs, wants, and views and use those factors to make your decision–don’t just go to the first bank someone recommends.

And please, please, please don’t listen to those conspiracy theorists who think banks have some evil plot to “get people” and bury their money in coffee cans in their backyards 🤣

One other thing to keep in mind is to make sure you keep tabs on your accounts so your money doesn’t end up in your state’s unclaimed property unit rather than your pocket.

Your Turn

Where do you have your personal bank accounts? Do you find the general stereotypes about the various types of banks to be true? What advice would you give someone who was looking for a first or new bank?

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