Do you know where you should store your money for returns on interest, savings, checking, or other financial services? While this sounds like a mundane and basic question, it is actually more thought provoking than what the average person believes. Everyone—well, most people—keep their money in some kind of financial institution. Whether it is a commercial bank, credit union, savings and loan associations, or savings banks, each one is unique in the services they provide for your hard earned money you deposit. That is why it is vitally important to decipher the differences between these financial institutions so you are better able to make an educated decision on where to deposit your funds.
Commercial banks are what you are most likely depositing your funds into. They differ in size and region location. Examples include J.P. Morgan Chase, Bank of America, Wells Fargo, Citi, and PNC. Commercial banks are like swift army knifes because they offer a wide breadth of services for their customers. For instance, checking and savings accounts, variety of loans and financial services.
When scoping out potential commercial banks, factor price, convenience, and service into your consideration. Each commercial bank has different prices for fees, service charges, and stipulations for accounts. Try to search for banks that have free checking accounts, but carefully discern whether there are stipulations or requirements for maintain free checking. Some banks have conditions where you can attain free checking but most maintain a checking account balances of a certain sum, or you must have so many deposits during a particular period. In addition, commercial banks typically pay less interest on savings accounts compared to credit unions or banks that specifically specialize in savings.
Be mindful of the fees and charges that you can accrue for over withdraws on your checking account, check bounces, and moving money too frequently out of a savings account. Certain banks have special accounts specifically designed for college students, veterans, or elderly. Banks also offer a variety of savings accounts, certificate of deposits, and checking accounts that best suit your particular needs.
Second, aim for convenience when selecting your bank. Try selecting a bank that is close to your residence or has multiple branches throughout your city or town. Lastly, banks that have terrific service when earn your trust and create loyal customers. However, this should be a reciprocal approach. If the bank manages your money correctly, you should be doing the same personally. For example, you are more likely to have a pleasant experience at your bank applying for a mortgage if you have a solid credit score than a less desirable score.
The next two banks are similar to commercial banks, but are focused primarily on savings. Savings banks usually pay higher interest on savings accounts than commercial banks and some even pay interest on checking accounts. Similar to savings banks are savings and loan associations. Savings and loan associations specialize in creating mortgages from depositors’ funds. They pay higher interest than commercial banks on their savings accounts, and offer wide array of services at a much lower and reasonable cost.
Finally, credit unions are another source for depositing your money. Credit unions were established to serve members with a common bond. For example, credit unions might only service postal workers or union members of a certain union. By having a common bond, the customers of this bank are more likely to know each other and thus lower the asymmetric information problem. Members are less likely to take on certain risks because they will be jeopardizing the money of their fellow coworker or friend. In addition, credit unions are more likely to assess individuals to determine if they are riskier than others. Credit unions pay high interest and charge less for loans. If you are thinking of joining a credit union, investigate the advantages they may have to offer. Unlike previous banks I mentioned above, credit unions are not federally insured by the government but in recent years there has been a push to insure deposits made at credit unions.
With the downturn of the economy about a decade ago, you may be wondering, how safe is my money when I deposit it each week? First, the Federal Deposit Insurance Corporation (FDIC) insures up to $250,000. This includes all accounts in your name up to $250,000 at a bank. If you have more than this amount, it is wise to divide it among separate bank entities. For a point of reference, all depositors have been repaid thanks to the FDIC. In addition, during the sale of bank assets, uninsured accounts are usually covered and repaid, although this is not an absolute guarantee. Aforementioned above, credit unions are similarly insured.
Banks are also the most regulated financial institutions in the United States. Thanks to the Federal Reserve, central bank of the United States, banks can avoid major crisis and if they were to fail, the Federal Reserve would kick in to make depositors are repaid and all funds are safely transferred to a more solvent institution.
Knowing where to keep your money is important in all business cycles and knowing the financial services that each one offers will be a better guide in helping you select a financial institution that best serves your needs.
