National and regional banks can offer a wide range of financial products and services. But depending on your banking needs and preferences, they may not provide the features you're looking for.
If you're looking to make a switch from a big bank, here are some alternatives to consider and the benefits and drawbacks of each one.
1. Credit Union
Credit unions provide many of the same financial products and services as big banks, as well as insurance protection for your money.
However, credit unions are not-for-profit organizations that are owned by their members instead of outside shareholders. To take advantage of these benefits, you must meet certain criteria to become a member. Those criteria can vary greatly, and some of the eligibility requirements may be based on your:
- Geographic location
- Employer
- Membership in an organization
- Family relations
Pros of Credit Unions
- Fewer fees: Credit unions are less likely to charge monthly fees on bank accounts, and they may also lack other common bank fees. However, some credit unions still do charge certain fees for deposit accounts.
- Better rates: Credit unions typically offer higher savings rates and lower interest rates on loans compared to big banks.
- Better ATM access: Most credit unions belong to a cooperative ATM network with other credit unions, giving you access to more fee-free ATMs than what many national and regional banks can provide.
Cons of Credit Unions
- Membership requirements: Unlike banks, credit unions have membership requirements. Most people are eligible to join at least one credit union, but not every credit union will work for every person.
- Fewer financial products: While some credit unions are gaining ground on big banks, smaller credit unions are less likely to offer the same range of banking, loan, investment and insurance products as their counterparts.
- Limited branches: While some credit unions have members nationwide, they tend to only have physical branches in a handful of states or communities. If you prefer in-person service, your options may be limited.
Who Should Consider a Credit Union?
Consider a credit union if you want a financial institution that understands and invests in your community. You may also benefit from lower fees and better rates on loans and savings accounts than big banks.
2. Online Bank
An online bank, also sometimes called a digital bank, is a financial institution that operates solely online. Like traditional banks and credit unions, most online banks are insured by the Federal Deposit Insurance Corp. (FDIC).
Pros of Online Banks
- Lower fees: Many online-only banks don't charge monthly service fees, and they're also more likely to waive other common charges, such as overdraft fees and incoming wire transfer fees.
- Better rates: Because they don't have the overhead costs of a brick-and-mortar branch network, online banks almost always pay higher annual percentage yield (APYs) on your savings balance. They may also offer lower interest rates on loan products.
- ATM access: Plenty of online banks have large networks of ATM partners, so you don't have to go out of your way to find an in-network ATM to avoid added fees. Some will even reimburse all fees if you're charged.
Cons of Online Banks
- No in-person banking: You may be able to chat with a representative or call your online bank anytime. But, if you crave an in-person experience, you'll need to consider a traditional bank or credit union.
- Limited cash deposits: Many online banks don't allow cash deposits. Among those that do, you may need to go through a third-party service that charges a fee per deposit.
- Limited account options: Online banks typically don't offer nearly as many products as big banks—some may only offer savings accounts. They're also less likely to offer certain services, such as notarization, insurance or wealth management.
Who Should Consider an Online Bank?
Online banks are best suited for people who prefer an entirely digital banking experience and don't typically use cash.
3. Community Bank
Community banks may offer many of the same products and services as big banks but with a limited reach. More specifically, community banks typically serve residents of a small geographic area, with a focus on building relationships and investing in the community.
Like bigger banks, most community banks are also FDIC-insured, so you can feel confident your money is safe up to a certain limit.
Pros of Community Banks
- Relationship approach: Because community banks only conduct business locally or regionally, it tends to be easier to develop close relationships with their customers.
- Community-focused: Community banks are more likely to support community initiatives, businesses and charitable organizations. Community banks may also be more likely to provide loans to low- and moderate-income households.
- Lower fees: On average, fees for nonsufficient funds or overdrafts are 13% to 19% lower at community banks than with larger banks, according to a 2021 report from the Consumer Financial Protection Bureau.
Cons of Community Banks
- Narrow reach: Community banks typically have a small number of branches and ATMs, as their reach is limited to the local community. If you travel regularly or move, you may have more limited options for accessing your money.
- Limited online experience: If you're more comfortable with a digital banking experience, a community bank may not be for you. Because of their size, some community banks may not have the resources to invest in the latest banking technology.
- Fewer financial services: Some community banks may not be able to offer the same array of financial products and services as larger banks. In other words, it may be harder to get all of your financial needs met with a community bank compared to a big bank.
Who Should Consider a Community Bank?
Community banks are best for people who prefer to do business with a smaller local bank that reinvests in their community. Although they don't operate nationwide branch networks, the emphasis on lending to and serving their communities can be very appealing.
4. Neobank
Neobanks are financial technology (fintech) companies that provide a variety of banking services over websites or mobile apps. They aren't banks, but they typically partner with FDIC-insured banks, so your money remains safe.
Neobanks are often online only and may offer some of the same features as digital banks, but some neobanks may also offer other features you can't get with traditional banks or credit unions.
Pros of Neobanks
- Low fees: Neobanks operate online and don't have to maintain or perform maintenance on branch offices. That means they can pass those savings along to their customers via low- or no-fee products and even provide services to the underbanked.
- Easy access: Like online-only banks, neobanks let customers perform many account functions completely online, 24/7.
- Fast turnaround: Many banking transactions, from opening an account to making a deposit, can often be done much quicker than with a big bank.
Cons of Neobanks
- Fewer products: Neobanks often offer fewer financial products than many banks and credit unions.
- No physical branches: If you prefer to visit a branch office in person, you probably want to choose another way to bank, as neobanks typically have no physical branches.
- Limited cash deposits: Like online banks, neobanks are less likely to allow cash deposits.
Who Should Consider a Neobank?
Neobanks are best for tech-savvy customers who don't care if a bank is truly a bank and don't mind doing most or all of their banking through a mobile app or website.
The Bottom Line
When choosing where to put your money, it's important to consider a variety of financial institutions. To determine the right one for you, think about the types of products, services and features you want in a bank account.
Then, shop around and carefully consider all of your options to understand the benefits and drawbacks of each. In some cases, it can make sense to have accounts with multiple institutions to take advantage of a variety of features and services. Just be sure to keep your accounts organized to stay on top of transactions and account benefits.
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