Which Bank is Best for You? Credit Union, Online?
Banking seems so simple but why do so many people get it wrong? If you read my Top 5 Personal Finance Priorities for Your 20s then you know that this is #1 and here is why.
Your banking options are limitless. You can use a small local credit union, an online bank, or a large multi-national bank. Like I’ve said 1000 times before though, you need to structure things for you personally, and that doesn’t exclude where you bank. What works for me won’t work for you. It is on you, however, to discover what your options are and take advantage of opportunities out there that avoid putting yourself in situations where a bank is actually taking money out of your pocket, yes it’s possible.
If you’re looking for that personal touch and hometown feel than a credit union is for you.
Credit Unions are member-owned which means that you bank where you are technically an owner. Now they use this as a huge selling point as it gives you a vote in electing the board that runs the bank. In reality, that’s really the only major perk of being ‘member-owned’. It sounds great though right?
I think the best perk of a credit union is that they are not for profit, unlike the big banks which we’ll talk about later. Because of this, they can offer lower fees, lower loan rates, and higher savings rates. Combine better rates with overall higher customer satisfaction scores and you have a recipe for success.
There are some important things to know before you go down to your local credit union and open an account. The first being that their technology, specifically phone app, will be years behind what a big bank might offer. In the past, I even banked with one that tried to charge me $5 a month to even use the app and another $1 per mobile check deposit! I quickly closed that account but beware they are still out there.
The second being that their locations are limited. Credit Unions are usually city specific so if you travel a lot you may want to look elsewhere. Being held to one city and having to pay $4 every time you get money out of an ATM anywhere else is just not smart and completely avoidable.
Lastly, they may not offer a brokerage service. If you are looking to invest for retirement and want to do it all in one place then a credit union may not be right for you. Most don’t even offer it and if they do it’s extremely pricey. Remember they may be a non-profit but they still have bills to pay as well!
The internet is limitless and only in recent years has banking exclusively online become more popular. I remember the first time I saw a commercial for an online bank and was confused as to what they do with my money. You know, the actual paper I have in my wallet. Little did I know that they would make my life, and thousands of others, so much more efficient.
Online banks have no physical locations, hence the name. Because of this lack of brick and mortar locations, they save a ton of money that is passed onto you with above average savings rates. This was the first large selling point of these types of banks but they have branched out to become an all in one shop.
You can get a car loan, apply for a mortgage, open an investment account, all online. The list of what they offer goes on and on and it is saving us, the customer, a ton of time and money. No longer do you have to send birthday money through the mail when you can just transfer it to your nephew a hundred miles away in a flash.
Remeber how I said I was confused how they could bank without my actual physical money? Well, this leads to one of the biggest issues with online banks and that is it takes time to get to your cash. If you need to withdraw money it will often take 3-5 days for them to mail you a check and sometime that just won’t work.
The other major concern people have with online banking is the lack of human interaction. It is your money we’re talking about and allowing a bank to hold it all when you’ve never met a single person that works there can be an uncomfortable situation.
The type of banks that we are all most familiar with is the large multi-national bank or as I like to call them the Big Bank. These are your Wells Fargo, JP Morgan Chase, Bank of America, etc. Chances are you drive past one of these banks every single day and never realize it.
Big banks have gotten a bad reputation (for good reason) for what happened with the mortgage crisis in 2008-09 that put us into the great recession. This shouldn’t scare you away from using them though, as they offer some great products.
As I said, big banks are everywhere which allows the customer to do business almost anywhere in the world. ATMs are in gas stations, grocery stores, and everywhere in between so no more paying that annoying fee just to get to YOUR money.
Since they are so large they can offer almost any financial product you can think of. You can have your car insured, write your will, and savings account all in one place. If it deals with money, they offer it. This doesn’t mean they offer the best rates though so research must be done.
My favorite perk is the online presence. Big banks can read the writing on the wall and are directly attacking online banks. They know we want to be able to do everything on our phone and they are building their apps accordingly. Having the ability to download all of my transactions to keep track of my finances is huge to me and I wouldn’t bank somewhere that doesn’t give me that option.
Big banks aren’t without fault though. Fees are the biggest negative that comes from using a big bank. Most of these companies are public, which means they have shareholders that want to make money so the bank must always find ways to increase revenue. The fact of the matter is that most of these fees can be avoided altogether though. Overdraft, late, or not maintaining a minimum balance fees are all things that you can control. It’s amazing how these fees can add up without a person even noticing.
The other major disadvantage of a large bank is that it is a corporation. This means there are levels of management and who can control what. The same loan that you may get in an hour at your local credit union may take weeks for approval at a big bank.
Find a mix of your options above. If you are able to keep all of your accounts straight, then why not take advantage of all the perks and avoid all the cons of the different options? It’s more than possible.
Personally, I use credit unions for any loans I want to get. I need to talk to someone in person to feel that trust for such large purchases. Because of this, I have used them to get a truck loan and a home mortgage. I also keep my emergency fund here. Reason being is I can access it quickly if needed, take advantage of a higher interest rate, and pay no fees.
My second account is an online savings account that allows me to save up for anything I want. Right now that is trips like the one I just took to Iceland, down the road it could be another rental property, who knows. I do this by simply setting a scheduled amount to be withdrawn from my normal checking and transferred to my online savings. Since its automatic, I don’t even know that it’s happening until I check the account value where I’m usually pleasantly surprised. I use Ally, simply because they are straightforward and offer a great interest rate.
My last account is the one I have with Chase. Chase is a gigantic bank but unfortunately has no physical locations where I live, so why do I use them? Simply put, their products are far superior to any other bank I’ve had. Mobile banking, credit card options, and excellent customer service has won me over most likely for life. My regular checking account is through Chase and so are all of my credit cards. I can easily manage these online and deposit any checks I get through my phone. Unfortunately, they don’t offer as high of interest rates as Ally does on savings accounts and having no physical locations means I need to stay with a credit union here in my city.
This all may seem quite overwhelming but this didn’t happen overnight. It took years to figure out this mixture for myself and now it basically runs itself through automatic deposits and bill pay.
Do you get why you need to customize this for yourself? If you’re ok with a savings account making .25% interest vs. 1.75% then simplify your life and cut out the online bank. If a local bank has everything you need then just use them. It’s all about personal preference.
Need help choosing a bank or structuring your accounts? Shoot me a message here.