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 interests at heart. To help depositors find a secure location for their hard earned money, here is a breakdown of the advantages and disadvantages of banks.
There are many advantages to using a bank. Whether you’re using one for your personal, small business or corporate needs, your financial well-being depends on properly managing your funds. Banks can help you do this by providing savings and checking accounts that yield interest through bank rates. Another benefit that banks provide is their ability to facilitate cash flow through transfers, withdrawals and deposits.
Banks also have the following advantages:
1. Banks are 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).
2. You’re 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 interest, which can cover the costs of keeping money in your account, because the funds are then used by institutions to make loans to other customers. 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.
3. You Can Obtain a Loan to Cover Purchases or Expenses
Banks are able to give you loans to pursue the costly items you want, such as a home or new car; not to mention, in the event that you’re strapped for cash and have to cover your basic needs and bills.
4. You Have Access to Credit
To build credit, one must spend money on a credit card and pay the value back on time. It is necessary to establish credit in order to make big purchases, be able to rent or pay the mortgage 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 financial move due to the threat of theft or loss. Additionally, letting money sit in your home prevents it from growing interest. However, you might 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 an account with the cooperative. Run democratically with member-volunteers as board members, issues like interest rates are voted upon and put into action. Because these institutions are not for profit, members are usually paid more handsomely on their deposits.
Opening an account with 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 not taxed federally and generally provide free services for their members with minimal fees.
Credit unions offer many of the same services as banks, and rival many of the bank advantages offered by commercial banks. Some benefits include much better interest rates than standard banks offer, allowing members to grow their money faster and save on loans.
Another reason credit unions are popular is because of their superior member 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 National Credit Union Administration (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.
Photo credit: Paul Bailey