Are you happy with your bank? Maybe you haven’t considered it because it doesn’t feel like many other options exist. Or, maybe inertia has taken over. You’re happy enough and switching banks feels like life admin you don’t need on your plate.
I’m in the latter camp. I’m not unhappy or happy. My bank is just a place to store my money.
But Yanely Espinal says that outlook actually isn’t the most effective when it comes to banking. Espinal is the director of educational outreach at Next Gen Personal Finance and the author of Mind Your Money.
And she says whenever you open an account with a bank, you're not just saving your own money. "Think of it as a loan. You are lending your money to that credit union, to that bank, to that institution, to that app," says Espinal.
You’re not just passively putting your money somewhere — you’re letting that bank or credit union use your money. So it’s important to think through what you want to do with your money.
"I am a fan of trying to find institutions that align with what you're looking for and what you care most about," Espinal says.
Here are four different types of institutions and companies you can loan your money to:
The main benefit of a major bank like Chase or Citibank is that your money will be easy to access, says Espinal. "You can go to any ATM anywhere and use your major bank's debit card."
Your money is also insured at major banks through the federal government. FDIC insurance protects each customer up to $250,000 per account, per bank. "You can almost guarantee that if you're at a major bank, your account is FDIC insured," says Espinal.
The goals and intentions of credit unions and major banks differ. Espinal says major banks are for-profit institutions with "their board members and shareholders" interests in mind.
In contrast, credit unions are not-for-profit organizations that are member-owned. Their primary responsibility is to their members."They're going to care the most about you, which means that they're going to lower the fees for you and offer you higher savings rates," says Espinal.
And like major banks, credit unions also protect each account up to $250,000 per bank, per customer through a different kind of insurance — the National Credit Union Administration or NCUA.
Espinal refers to community banks as somewhere between major banks and credit unions.
With a community bank, you'll get "more personalized service than what you may experience at a major bank," says Espinal. But you might miss out on some of the conveniences a major bank offers — like depositing checks via the bank's app.
That being said, you'll get many of the "same products and services that a major bank would offer," says Espinal, but with the customer service of a credit union.
Fintech banks
Espinal says that fintech banks (short for financial technology) are mobile-only banking options.
These banks don't have brick-and-mortar locations and generally market to a younger generation frustrated by the maintenance and overdraft fees that major banks often tack on, says Espinal.
The benefits of fintech banks include good mobile banking experiences and lower fees than major banks and sometimes credit unions, too. The risk with fintech banks is that they're new so they can struggle to maintain and raise capital, says Espinal. Also, fintech apps may or may not offer insurance. Sometimes a mobile-only bank will partner with a major FDIC-insured bank, though, says Espinal.
And you don’t have to pick just one of these institutions or banks. Espinal says to look into "diversifying where you put your money." She keeps her savings in a high-yield account with an online-only bank and uses a major bank for her checking account.
—Clare Marie Schneider, Life Kit editor and producer
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