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This story originally appeared on NerdWallet
Account fees that are too high, low savings rates and poor customer service. There are many reasons why you may choose to quit a large national bank, but it might not be the right decision for you.
Many banks in the United States share the many benefits of large bank networks, such as ATMs and branches that are owned by the bank and strong mobile apps. They also have many of the same disadvantages such as low savings rates and high overdraft fees. These four options are better than big banks if you’re looking for different benefits that will suit your specific needs.
Credit unions, which are community-focused and not-for profit institutions, place a lot of emphasis on customer service. Although they offer similar services, accounts and deposits protections to big banks, credit unions typically offer better rates. Compared with banks, on average, credit unions pay higher interest rates for certain savings accounts and charge lower rates for auto and home loans, according to June 2021 data from the National Credit Union Administration.
Chris Lorence is the executive director of CU Awareness (a division within Credit Union National Association). He says that credit unions were built on service and not profits. Credit unions do not return funds to shareholders as dividends, but instead, they give members profits in other ways than operating expenses, such as better rates or easier access.
There are certain criteria that limit who is allowed to join a credit union as a member. This could include being a member of a family, where you live or work or having an immediate relative who is a member. You may also be able to donate a small amount to a specific group. Some credit unions may not be accessible to all due to these membership requirements. Credit unions can also be hampered by their slow adoption of new technology, like mobile banking, which big banks are able to access faster.
Banks for the community
Community banks, which are small financial institutions measured in asset size and that target specific geographical areas, are smaller than traditional banking establishments. These banks provide vital community presence and support relationship-based banking. They are especially useful for small-business loans and mortgages. According to the Brookings Institute’s 2018 study, one in three rural mortgages was originated at a credit union or community bank with assets less than $10 million. A community bank can also be the sole physical bank in a certain area. They can take into account more personal factors when granting loans or other accounts.
Independent Community Bankers of America defined community banks as those banks that have $50 billion in assets or less as small banks. They issued 4.7 millions loans under the Paycheck Protection Program to help small businesses affected. According to an analysis by ICBA of data from Small Business Administration, the loans saved 49 million jobs and totalled $429 billion. Additionally, PPP loans were processed by community banks five to ten days quicker than those of other PPP lenders.
Chris Cole, executive vice-president of the ICBA, says that there were many small businesses who couldn’t open accounts at large banks during the earlier stages of the pandemic. The community banks played a large role in PPP, helping to ensure that businesses continued to thrive.
Community banks, like credit unions have trouble keeping up with the latest technology of larger institutions and providers that are online-focused.
Online banks can be accessed via websites or mobile apps. Online banks are branchless and can transfer savings to customers by not having to pay for physical locations. They also offer minimal fees, as well as the best savings rates. Online banks can be either standalone entities or online branches of larger banks. However, the Federal Deposit Insurance Corp. insures customers’ funds.
About 40% of Americans who opened online-only accounts during the first year of the pandemic did so because of their high rates, according to a 2021 NerdWallet study. Online savings account interest rates can range from 0.4% to 0.5% annually percentage yield. This is more than 20 times higher than the average rate of 0.022% at the base savings option of each of the four largest banks, Chase, Bank of America and Citibank. Online checking accounts are more likely to be free or lower than those at the four largest banks. They charge an average $35 per transaction that makes an account negative.
Online banking means that you will have to give up some services such as customer service at branches, cash deposits and wire transfers. You should also be aware that not all online banks provide the same types of accounts. Make sure to choose the one with the right account type for you, including checking or savings accounts.
Neobanks are financial technology companies that offer mobile-first banking services, especially low-cost checking accounts with more perks than traditional institutions offer. Neobanks such as Current and Chime can partner with banks to offer their accounts, or in some cases, they may become banks. In both cases, neobanks offer FDIC-insured accounts which act as regular online banking accounts.
This technology allows these institutions to offer features that many banks, online banks, and the largest banks do not provide, like two-day early access to cash deposits at retailers, direct deposits and two-day access to deposits.
Brenton Peck from Financial Health Network stated in an email that “Neobanks have… built lots of money management tools, and financial health tips right into their core bank services from the beginning.” Some neobanks have “carved out niches by meeting consumers when they are struggling financially,” such as SoFi which began as a student loan refinance business.
Neobanks, like online banks, don’t offer the same services as brick-and-mortar branches, like in-person support. Only a handful of neobanks have high savings rates. There have also been reports of neobanks, especially Chime, having slow customer support response times and dealing with suspected account fraud by closing accounts abruptly instead of giving sufficient time for customers to respond to claims.
Consider your needs as a banker and whether you are ready to give up your large bank.
Are You Tired of Your Big Bank? The article Tired of Your Big Bank?
Publié at Tue 31 August 2021, 00:20.50 +0000