Which Financial Services Provider Is Right for You?
Traditional financial institutions, such as commercial banks and credit unions, offer a variety of incentives to consumers looking for a safe place to store their money. In addition to ensuring the security of your money by preventing cash from being lost or stolen, your deposits are also insured by the federal government.[1] You may even earn interest with certain bank accounts.[2] In addition to traditional financial institutions, consumers may also consider alternative financial service providers for their financial needs. Alternative financial service providers typically offer some of the same financial products and services to consumers that traditional financial institutions offer, but they also offer different financial products and services that may be useful for consumers when deciding where to do business.
To help you choose which type of financial services provider best meets your needs, you’ll have to ask yourself certain questions to clarify your needs. Are you looking to track your expenses and manage your spending with a checking account or a prepaid debit card? Or are you hoping to get access to an auto loan? We’ll walk you through each of the three major types of financial service providers in order to help you determine which one is right for you.
Types of Financial Service Providers to Consider?
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Commercial and Savings Banks
Commercial banks and savings banks (also known as savings & loans) are the most common traditional financial institutions in the United States. Today, these two types of banks offer many of the same services; however, historically there were some key differences. Commercial banks tended to serve large businesses primarily, while savings banks focused on individual consumers.[3] The historical differences between these two types of financial institutions have faded in recent times, and today both types tend to be full service banks offering a wide range of products and services to both businesses and individual consumers.
Some financial products and services that commercial and savings banks offer include:
- Checking and savings accounts
- Personal loans
- Mortgages
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Benefits of Commercial and Savings Banks
Choosing a commercial or savings bank as your financial service provider gives you a few key benefits that credit unions and alternative financial service providers don’t always provide. The first benefit is that banks may have a larger network of ATMs and locations. This makes it easier to withdraw money, no matter where you are in the country.
Banks are also more likely to utilize financial technology to offer online services. Many big banks have embraced fintech services such as mobile apps that allow you to monitor your checking account online, deposit checks, or pay bills.4
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Credit Unions
Credit unions offer many of the same services as banks, including accepting deposits and offering loans. However, they differ in that they are not-for-profit organizations that are cooperative, meaning they are owned by their members. Any profits made by a credit union are then funneled back to the members through reduced fees, increased savings rates, and reduced loan rates.5
There are certain requirements for membership, however. Unlike a bank, you must be accepted into a credit union. If your employer or a member of your family is in a credit union, this may allow you to join. You may also be able to join based on the geographic area where you live or work. Lastly, certain groups such as schools, labor unions, military groups, or even homeowners’ associations may allow members to join their credit union.6
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Benefits of a Credit Union
Credit unions are a popular alternative to traditional banks because they often provide more affordable interest rates. This is because they are not-for-profit, which means they aren’t as focused on the bottom line. Credit unions also usually have low fees as well for the same reasons.7
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Alternative Financial Service Providers
The last type of financial services provider to consider are alternative financial service providers. These companies do not offer traditional checking accounts like banks or credit unions, but some make bank accounts available by working with banks to distribute the bank’s products. Additionally, alternative financial service providers offer a range of simple transactions and consumer finance products and services, such as check cashing and small loans.
The financial products and services offered by these companies include:
- Check cashing
- Short-term loans
- Bill payment
- Prepaid debit cards
- Money transfers
- Money orders
- ATM Services
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Benefits of Alternative Financial Service Providers
Alternative financial service providers can offer you an attractive alternative to traditional banking services. They typically provide consumers with greater choice when it comes to choosing which financial products and services you need. If you don’t want to open a checking account just to get a short-term loan or to cash a check, these companies give you access to these products and services without having to jump through many of the hoops of traditional banks and credit unions.9 They also tend to have expanded hours and may even be open on the weekends.
Making Your Choice
The best way to determine which financial service provider is right for you is to first think about the products and services you want. Then, consider each financial service provider’s offering to figure out whether they offer what you need. Once you’ve eliminated the ones that don’t offer what you want, evaluate the pros and cons of each provider (such as fees, accessibility, etc.)
If you decide to open a checking account with a traditional bank or a credit union, we’ve got all the info you need to learn how to get more from your checking account.
Sources:
- https://www.fdic.gov/resources/deposit-insurance/brochures/insured-deposits/#:~:text=The%20standard%20deposit%20insurance%20amount,another%20separately%20chartered%20insured%20bank.
- https://www.thebalance.com/earn-interest-and-get-free-checking-in-the-same-account-315296#:~:text=Interest%20payments%20are%20the%20amount,unions%2C%20as%20opposed%20to%20banks.
- 3. https://www.investopedia.com/ask/answers/041015/what-difference-between-savings-loan-company-and-bank.asp
- https://smartasset.com/checking-account/2018-best-mobile-banking-apps
- https://www.mycreditunion.gov/about-credit-unions/credit-union-different-than-a-bank#:~:text=What%20is%20a%20Credit%20Union%3F&text=Like%20banks%2C%20credit%20unions%20accept,and%20borrow%20at%20reasonable%20rates.
- https://www.mycreditunion.gov/about-credit-unions/credit-union-different-than-a-bank#:~:text=What%20is%20a%20Credit%20Union%3F&text=Like%20banks%2C%20credit%20unions%20accept,and%20borrow%20at%20reasonable%20rates.
- https://www.goodcall.com/personal-finance/banks-vs-credit-unions/
- https://www.forbes.com/advisor/banking/what-is-a-check-cashing-service/#:~:text=Check%2Dcashing%20services%20are%20not,payday%20loans%20or%20payday%20advances.
- https://www.acecashexpress.com/about-ace
