Since the days of keeping valuables locked up in treasure boxes in the form of gold, silver and jewels, people throughout the world have relied on banks to keep their financial assets secure.
However, some people do not trust that banks have their best interest at heart. To help depositors find a secure location for their hard earned money, GoBankingRates examine the advantages and disadvantages of banks.
There are many advantages to using a bank. Whether you’re an individual, a small business or big corporation, your financial well-being depends on properly managing your funds. Banks can help you do this by providing secure savings accounts and budgeted checking accounts that yield interest through bank rates. Another benefit that banks provide is their ability to facilitate the access of money, transfers, withdrawals and deposits.
- FDIC Insured. Whether it’s a savings, checking, trust fund, certificate of deposit or Roth IRA account, it’s insured by the Federal Deposit Insurance Corporation (FDIC).
- Getting Paid to Save. The earlier you start a savings account, the more money that savings account will accumulate over time. Your savings account will earn high interest rates, which pay you for keeping money in your account, because the funds are then used by institutions to make loans to other people. CDs are used for the same purposes and offer even higher interest rates, however you are unable to withdraw without penalty for a certain amount of time.
- Loans. Banks are able to give you loans to be able to pursue the things you want, such as home ownership, higher education, or a new car.
- Credit. Learning how to build credit involves spending money on a credit card. It is necessary to establish credit in order to make big purchases, be able to rent, or pay mortgages on your home.
Disadvantages of Banks
Obviously, the idea of keeping your life savings, in cash, all in your own possession is not the best idea due to the threat of theft or loss, and not growing your savings. However, you may be adverse to choosing a bank for your financial needs because of high bank fees and low bank rates on deposit accounts these days.
If you are not interested in working with for-profit financial institutions, there is a safe alternative to turn to for all your financial service needs.
Credit unions are financial institutions that are owned by everyone who has account at the cooperative. Run democratically with member-volunteers as board members, issues like interest rates are voted upon and put into action.
Starting accounts at a credit union is a safe, alternative option, but you have to apply through an employer group, social group or qualify for a common bond established by the credit union to join. These institutions are non-profit organizations that are not taxed federally, and generally provide free services for their customers with minimal fees.
They offer many of the same services as banks, and rival many of the bank advantages offered by commercial banks. Some benefits include much higher interest rates than standard banks that allow your money to grow at a faster rate.
Another reason credit unions are popular is because of their superior customer service. A leading frustration of bank customers today are continuous bank fees, hidden charges and penalties on accounts that hinder savings growth.
Whether choosing a bank or credit union is right for you, always make sure your money is somewhere that is insured by either the FDIC or NCUA. This factor can help you feel more at ease about entrusting a third-party financial institution to care for your funds as the economy continues to recover.