Whether you are a business or an individual, it is an
important decision where to keep your money. There are more choices now than
ever and for some, the choices are confusing. You can keep your money in a
traditional bank (brick and mortar), or you can choose to keep it in a credit
union, and there is the choice to keep your money in an online bank (that has
no physical location). How do you choose? You can choose by looking at the
features along with the advantages and disadvantages of each. You weigh these
against your needs and your desired results, and then you will have a better
idea of which is the right banking option for you. Let’s begin by looking at the history of the
traditional bank.
In the late 1830s, states were given the authority to open
banks, and the industry began to grow. Because money was dependent upon the
market and the amount of business they had, those banks that had few customers
closed. After all of these changes and another war, the traditional banking
system that is in place now began. The Federal Reserve started in the early
1900s and functioned as a way to stabilize the market to ensure that the value
of money did not run too high or drop too low.
This was and is done by regulating interest rates and by buying and
selling bonds[2].
Today there are many options for brick and mortar banking no
matter in what state you reside. Additionally, after you choose a bank, there
are many options regarding what type of account you can choose. There are banks
that offer free checking, high-interest checking (which usually comes with the
need to keep a certain balance), money market accounts, certificate of deposits
(CDs), savings, IRAs (Individual Retirement Accounts), etc. The brick and mortar banks offer physical branches
where banking can be done.
One of the advantages of brick and mortar banking is the
option to go into a branch and speak with a teller or other bank personnel.
Some customers like to speak with the people who are holding their money and
they appreciate the one-on-one interaction. The brick and mortar banks usually
have several branches in different cities, so you do not have to travel far to
find another branch. There are ATMs across the branches, so you have 24/7
access to your money. More brick and mortar branches have the option to handle
some transactions online, such as balance inquiries and transfers. Additionally,
more banks are allowing for online bill pay, which automatically deducts money
from your specified account and transfers it to the business of your choice.
Some of the disadvantages of brick and mortar banking are
the fees that can be associated with your account. Some banks charge extra ATM
fees if you do not use the preferred ATM providers. Additionally, some banks
charge fees if you do not keep a certain amount of money in your account or if
you have too many or too few transactions during a month. The interest rates
appear to be lower at the brick and mortar banks as well. Additionally, most
banks are for-profit and regulated by the FDIC and owned by shareholders. Some
people wanted an alternative to this and switched over to a credit union.
In the early 1900s, the first credit union began in the
United States. Through this formation came the founding of the Credit Union
National Extension Bureau (CUNEB) in 1921, and the Federal Credit Union Act of
1934[3].
These both stood to examine and solidify the rules and regulations related to
credit unions at the state and federal level. In the early ‘70s, the National Credit
Union Administration (NCUA) and the National Credit Union Share Insurance Fund
(NCUSIF) were formed to oversee the federal credit unions and insure the
deposits. As time went on, they became “backed by the full faith and credit of the United States Government” and
were able to offer additional services like mortgages and loans.
Credit unions are owned by the members and are not-for-profit
institutions. They generally have higher interest rates and lower fees. As with
banks, credit unions are brick and mortar establishments that offer in-person
transactions as well as ATM access. While banks usually have ATMs associated
with them, credit unions can allow access (for no fee) at other establishments
(such as ATMs at convenience stores). Also, the credit union board of directors
is voted into office by the credit union members. The credit unions allow online access to
accounts where a member can check their balance, transfer funds, or set up bill
pay, among other things.
Unlike traditional banks, there are fewer locations for
credit unions. So, if you need to actually go to a branch, there might not be
one close by. Some credit unions allow other credit union members to conduct
transactions at their branch. Meaning Credit Union A will allow members of
Credit Union B to conduct transactions. This is something that will need to be
checked before you drive to another credit union. Some credit unions have membership
requirements. Everyone is not allowed to join, and you must meet the criteria
needed for membership. Some individuals do not need the face-to-face
interaction and choose to conduct their banking at an online bank.
While the ability to bank online (from a brick and mortar
bank) has been around since early 2000, it was in 2005 when the first direct banks
(banks purely online) were formed[4].
The banks offer the ability to conduct transactions at any time because as long
as you have access to the Internet, you will have access to your bank. So if
you would like to bank at 2:00 a.m. on Sunday morning, then you can. There is
no waiting in line on Friday to deposit your check, and you can open accounts
(checking, savings, CDs, money market accounts, etc.) easily. Banking online
offers the ability to set up bill pay, as some brick and mortar establishment’s
offer, and set up automatic payments. This can save money due to not needing to
go to the post office or buy stamps. Another helpful area (that other
establishments share) is the ability to alert you to potentially fraudulent
activity or low balances.
Obviously, one downside to pure online banking is what to do
when you don’t have access to the Internet. There are some that are worried
about the security and encryption of their information, but most banking
establishments have data that is kept online. So, as a general thought, any
form of banking has online data components. As with credit unions, there may not
be a large number of ATMs that you can access depending upon the bank that you
choose. It is important to consider this before signing up with any particular
bank.
There are many similarities that can be seen between all of
the banking choices. The final consideration is how comfortable you feel
putting your money in any of the establishments. Do you feel comfortable not
having a physical bank? Would you like the institution to be owned by the
members? What are your banking needs? By reviewing your banking needs and wants
you can come to the decision regarding which institution is best for you.
[1] Anderson, Kelly. "The Complete
History of Banks in the United States." Mint.
N.p., n.d. Web. 10 Jan. 2014.
<https://www.mint.com/the-complete-history-of-banks-in-the-united-states/>.
[2] Ibid
[3] MyCreditUnion.gov. "Historical
Timeline of Credit Unions." History
Timeline of Credit Unions. National Credit Union Administration, n.d. Web.
10 Jan. 2014.
<http://www.mycreditunion.gov/Pages/historical-timeline-of-credit-unions.aspx>.
[4] Yodlee. "Infographic: The History Of
Internet Banking (1983 – 2012)." The
Financial Brand Marketing Insights for Banks Credit Unions. The Financial
Brand, 2 Oct. 2012. Web. 10 Jan. 2014.
<http://thefinancialbrand.com/25380/yodlee-history-of-internet-banking/>.
