In the 21st century, there are seemingly limitless options when it comes to banking. You can still go to a traditional bank to perform deposits and withdrawals. Or, you can do just about everything online. Credit unions provide an alternative to classic banks. And then, there are several different account types for you to choose from. This page should give you a good beginning overview of what is available to you.
When most people refer to 'banking,' they are referring to traditional banking. Traditional banks were the first financial intermediaries to make loans, serve as depository institutions, directly control the checkable deposits portion of the economy's money supply, and maintain deposits. Since it was first to offer checkable deposits, traditional banking is the original banking.
Traditional banking is usually handled by an organization that has the word 'bank' in its name. This bank is regulated by one of the fifty state corporation commissions or the comptroller of currency at the federal level. Traditional banks will typically have 'state' or 'national' in their name to denote the level of government that does their chartering. All banks are subject to regulations by the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve System.
Many consumers prefer traditional banking because you have more of a personal, physical connection with your money. For instance, with traditional banking, you get cash handed back to you, you place items into or take them out of a bank safety deposit box, and you present checks for deposit.
Traditional banking is also still popular because you obtain a hard copy receipt from the ATM or teller when you make a deposit. For many, this gives them the security of knowing their deposit is safely in the bank. In addition, you can interact face-to-face with a teller, special account representative, or bank manager.
When you visit a traditional bank, you have the benefit of increased security in the form of on-duty security guards and surveillance cameras. Aside from the occasional times when they are being serviced or are out of service, traditional banks offer walk-up depositories outside of their facility that allow for easy deposits and withdrawals (as is the case with ATMs) at any time of the day or night on every day of the year.
One of the reasons traditional banking has fallen out of favor for many people, especially younger adults, is that it can be inconvenient. With traditional banking, you need to drive to your bank and wait in line to conduct your business. As we will see in the next section, there are ways to cut out these steps.
At its most basic, online banking consists of an electronic payment system that allows customers of a financial institution to complete financial transactions on a website operated by the credit union, retail bank, building society, virtual bank, or other financial institution. Other terms used for online banking include e-banking, virtual banking, and internet banking.
A customer must have Internet access to use a bank's online banking facility. They are generally required to register with the institution for the service. This involves setting up a password and providing other credentials for customer verification.
Even if customers have not indicated their intentions of accessing the online banking facility, banks now routinely allocate special online numbers. These are usually different from their account numbers to allow for several accounts to be connected to one online banking user. The customer number can be linked to any account controlled by the customer, like loan, checking, credit card, and savings accounts.
A customer visits the secure website for a financial institution to access online banking. Using the credentials they previously setup and their customer number, they can enter the online banking facility. There are both application specific as well as common capabilities and features found in all online banking facilities offered by the many different types of financial institutions.
One of the common features you will find through most online banking facilities is non-transactional tasks. This includes downloading periodic account statements, viewing images of paid checks, viewing recent transactions, downloading applications for M-banking, ordering checkbooks, downloading bank statements, and viewing your account balances.
Through online banking, bank customers can transact banking tasks. This includes credit card applications, investment sales or purchases, funds transfers between the customer's linked accounts, and making bill payments and registering utility billers. In addition, customers can fill out loan applications and conduct transactions, like repayments. You can also pay third parties with third party fund transfers and bill payment setups.
There are several advantages to online banks for both the customers and the bank. Since a live person does not have to process each transaction, there are lower general and transaction costs. You can gain access to your account wherever you have an internet connection. You also get permanent access to the bank.
Online banking is governed federally in the United States by the Electronic Funds Transfer Act of 1978.
Checking & Savings Accounts
The most common financial products offered by credit unions and banks is savings and checking accounts. Each account type allows you to deposit funds and offers insurance backed by the government to guarantee the safety of your balance. First, let's take a closer look at checking accounts.
Checking accounts are meant to be used for regular spending and immediate needs, including depositing money (e.g., direct deposits of your paycheck or other payments you receive), paying bills, transferring funds to and from other accounts, and covering everyday expenses, like purchasing groceries or gas.
Your checking account is not the best alternative for use as a reserve account for your cash. This is more the realm of a savings account. You do not earn interest in most checking accounts. However, there are some financial institutions that do offer interest-paying checking accounts, but even these earn less than savings accounts. Either way, most people have trouble saving money in an account that they use regularly for everyday expenses.
On the other hand, savings accounts are made for less accessibility. Instead, they are designed for deferring your spending, earning interest on your deposits, and earmarking the funds for specific purposes, including emergencies or buying a new car or other expensive items.
Compared to alternative savings vehicles like investments and certificates of deposit (CDs), savings accounts serve a different purpose. You can get a higher interest rate with CDs, but you cannot access your money without penalty until the term of the CD is over. Savings accounts are more flexible in this respect. Investments have the potential to earn more, but you can also lose money.
Based on the specific kind of account you open and your financial institution, savings accounts charge fewer fees than checking accounts. Due to the lack of regular spending features, savings accounts do not have many of the fees that are found with checking accounts. The monthly service charge is the most common fee associated with both types of accounts. However, if you sign up for direct deposit or meet a minimal daily balance, you can usually get these fees waived.
When budgeting, checking and savings accounts work well together even though they offer contrasting features and are used for different purposes. Many people will open both a savings and a checking account for this reason.
When you have both account types, it makes saving money easier, you can protect yourself from costly overdraft fees, and you may be able to earn more interest. With your savings balance out of sight and out of mind, you can save more by splitting your funds between checking and savings. You may be less tempted to spend all of your money if you keep only what you need on a daily basis in your checking account and toss the rest in your savings.
Money Market Accounts
Savings accounts, CDs, and investments are not the only places to watch your money grow. Some savers can get better returns in money market accounts, commonly referred to as money market savings or money market deposit accounts.
These are a special kind of account provided by some credit unions and banks. Do not confuse them with money market funds, which can lose money based on market performance. What sets money market accounts apart? Here are some of the basic facts:
- Money market accounts pay interest like savings accounts do. However, the main difference is that they usually require a high minimum balance if you want to avoid paying fees.
- If the financial institution is federally insured, then the money market account will also be federally insured. The insurance comes from the National Credit Union Administration (NCUA) if you have your account at a credit union. On the other hand, if your account is at a bank, it is generally backed by the FDIC. There are $250,000 maximums in both cases.
- You can write checks to draw on the balance of some money market accounts, but there are special regulations on these accounts.
- Under the Federal Reserve's Regulation D, account holders are not allowed to make more than six 'convenient' withdrawals or transfers per month on these accounts. This mostly refers to online banking and does not include withdrawals by messenger, ATM, telephone, mail, or in person.
A money market account may be the best option for you if you need the ability to access your money occasionally, which is not a possibility with CDs. If you are looking for a risk-free account in which to store excess cash, you may also want to consider a money market account. Lastly, if you have a significant savings of at least $5,000 and can keep that balance month after month, you might consider one of these accounts.
Consumers are turning to credit unions in record numbers as scandals and rising fees fuel misgivings about banks. According to the NCUA, there are over 7,000 credit unions in the United States. These financial institutions vary quite a bit in the services they provide and how large they are. There are both benefits and downsides to joining a credit union.
As a member of a credit union, you are part of a cooperative of which you are part owner. Their mission is not to make huge profits. Rather, they want to supply members with inexpensive financial services. This has led to credit union members regularly rating their satisfaction with their financial institution as higher than customers of banks.
On the flip side, there are some hurdles to becoming a member of a credit union. You cannot open an account at any credit union you want. While there are many credit unions that are inclusive of just about everyone, others require you to meet certain fields of membership, including fraternal or religious affiliations, employee groups, residential areas, and associations.
Using their not-for-profit status, credit unions traditionally pass on the savings through their entire product line. This includes providing lower interest rates on credit cards and loans and higher rates on saving accounts. Credit unions offer very competitive rates if you are looking to transfer a credit card balance for a lower interest rate. Yet, if you like to pile up points by paying off a credit card balance each month, you are unlikely to find products that offer this opportunity at credit unions. They are out there, but they are rare.
If you like to avoid fees, there are rarely minimum balance requirements at credit unions. This contrasts with traditional banks that have been forcing account holders to adjust to higher minimum balance requirements. However, banks typically have more resources at their disposal, so they can offer emerging technologies, like mobile banking apps.
One of the most attractive features of credit unions is the CO-OP ATM network and shared branch alliance that most credit unions are a part of. This allows you to do your banking at ATMs or branches belonging to just about any credit union across the country without any additional fees. This includes nearly 30,000 cash machines and 4,700 branches.
This should give you a good idea of how banking works and what solutions are available to you. Contact us or explore our site to learn more!