Gone are the days when most people held-on to their hard earned cash. Today, most of us wouldn’t feel very safe keeping all of our hard-earned cash under our pillows at night, so we open bank accounts and park our cash there instead. Banks and credit unions help keep your money safe and they can also grow your wealth, depending on the type of bank account you choose.
Picking the right bank or credit union account can be challenging, especially for those who are new to banking. By the end of this article, you should understand the differences between banks and credit unions, types of bank accounts, what to look for in a bank account, and how to open a bank account and fund your account.
The first decision you’ll have to make is whether you’d like to put your money in a brick-and-mortar bank, a credit union, or an online bank.
What is a bank?
Best for: Those who want a variety of product offerings, advanced online tools, and easy access to their funds.
Not for: Those who want the lowest fees and the most favourable interest rates.
You’re probably familiar with brick-and-mortar banks such as ABSA, Capitec , FNB, Standard Bank, Nedbank among others even if you’ve never had an account with one. Banks are businesses to make profit owned by a group of investors. Some banks are regional while others are national, but they’re typically larger than credit unions. Most have hopped on the bandwagon with online banking features, like mobile check deposit and online payments, mobile money etc , but you can still visit a branch location in the bank’s service area if you’d like in-person support.
Anyone can join a bank and they’ll usually enjoy a wider variety of services than credit union members, including checking and savings accounts, personal and business loans, credit cards, certificates of deposit (CDs), money market accounts (MMAs), and other investment products. However, because banks have so many buildings to operate and people to pay, they often charge higher fees and offer lower interest rates on checking and savings accounts than credit unions or online banks.
A significant amount of the money in banks is protected by various insurance policies , which means that if any of the major banks were to go under, you would be paid up to the amount insured.
What is a credit union/mutual bank?
Best for: Those who want good customer service and more favourable interest rates than brick-and-mortar banks.
Not for: Those interested in rarer product offerings, like business bank accounts or money market accounts (not all credit unions offer these).
Credit unions are nonprofit organisations and could be called mutual banks owned by their members. Each defines its membership differently. Some only require you to pay a small membership fee to open a credit union account while others only allow people in a certain geographic area or members of a certain organisation, like the military and their family members, to join. If you’re considering a credit union/mutual bank, look over its membership requirements to ensure that you’re eligible to join before you start filling out any applications.
Most credit unions are small local or regional institutions. They usually don’t have the advanced online banking tools or the large network of branches or surcharge-free ATMs that can be useful to those who travel often. They also tend to have fewer product offerings than larger banks. But they still draw many customers because their customer service is often better than some large national banks’ and they often have lower interest rates on loans and higher interest rates on checking and savings accounts.
What is an online bank?
Best for: Those seeking the best interest rates on loans and bank accounts and advanced online banking tools.
Not for: Those who prefer in-person customer support and those who need fast access to their cash.
Online banks are fast becoming one of the most popular places for people to park their cash. They’re similar to brick-and-mortar banks, except they don’t have any branch locations. If you need help, you must contact the online bank by phone or email. Avoiding branches helps keep online banks’ overhead costs low and they are able to pass their savings along to their customers in the form of high interest rates on bank accounts and low interest rates on loans.
The biggest drawback of online banks is that accessing your funds can be more difficult. Some banks have ATM networks where you can withdraw cash for free, but if you don’t live near one of these or you need to withdraw a large sum of money at once, you’ll probably have to transfer the funds to a bank account in your name at a brick-and-mortar branch so you can get your money out. This can take several days.
There is no clear winner in the brick-and-mortar bank vs. credit union/mutual bank vs. online bank battle. It all depends on how you plan to use your money and what you value most — easy access, favourable interest rates, customer service, or something else. Understanding the pros and cons of each type of financial institution can help you begin narrowing down your options.