Learning Adulting? Here Are 4 Types of Banks and How They Work

Your finances are an important part of your everyday life. In order to maintain a good lifelong financial strategy, you should be aware of the four most common banking options and how they work.

Understanding the difference between each will help you make some important financial decisions.

Community Banks

These are financial institutions that are owned and operated locally. They aren't affiliated with larger banks, so their funding sources come from the local community. 

Although they operate on a smaller scale, community banks offer a full range of services, including checking and savings accounts, certificates of deposit, mortgage loans, and more.

One of the biggest advantages of banking with a community bank is that all financial decisions are made by people who live in your community. They don't need to consult with a larger financial institution about approving loan applications.

A disadvantage of community banks is that they often don't utilize the same technology as larger banks, which can limit your ability to manage your finances online. There's also the risk that a larger bank could purchase your community bank and rebrand it to be part of a larger financial institution.

International Banks

These banks are based out of a foreign location and typically service clients that live in one country but wish to utilize banking services in another. 

International banks typically offer checking and other special deposit accounts. Most of these earn interest as long as they maintain a certain minimum balance.

There are a few benefits of banking with an international bank, including the ability to protect your assets. Assets held at other banks can be seized by the authorities if necessary to satisfy legal fees, but funds in international banks are untouchable. 

Banking with international banks also allows you to take advantage of more competitive interest rates, which is great for those preparing for retirement years.

If you're thinking of banking with an international bank, it's important to understand the laws and regulations specific to the country the bank is located in.

Credit Unions

Credit unions usually offer the same services as other banks, but the biggest difference is that they are owned by account holders. Because of this, they are considered non-profits and offer tax exemption benefits. 

Credit unions can be located locally or nationally, and it isn't out of the ordinary for them to be established to benefit people working in specific industries or residing in a certain region.

Members of credit unions enjoy the benefit of not incurring fees, but they offer fewer financial services and are limited in what they can allow customers to borrow compared to other banks.

Online Banks

These financial institutions do not have any physical locations, which means all financial transactions are done virtually.

One of the biggest benefits of online banks is that there are no limitations when it comes to your ability to conduct business. You can easily manage your finances without leaving home. 

In addition, since they do not have to maintain in-person banking locations, they often charge lower fees and provide a better return on any investments you may have. They also use all of the latest technology and security features, which can give you peace of mind.

While there are many benefits to online banking, one drawback is that some online banks don't offer a basic checking account option. In addition, depositing a check electronically can sometimes prove to be a challenge and your options to speak to a real person are limited.

Each of these banking options offers great benefits, but it's important to do your research to ensure you're choosing a financial institution that meets your specific needs.

Credit Unions vs. Banks and Which Is Best for Getting The Most Out Of Your Money

In years past when you wanted to open a checking or savings account, obtain financing for a car or other big purchase, or were interested in making your money work for you as much as possible, you likely did like many other people and relied on a bank.

While there's nothing wrong with this, many people are now taking a closer look at credit unions as an alternative. Are there major differences between the two? If you're wondering which will help you get the most out of your money, here's what you need to know.

Interest Rates

If you do business with a credit union, chances are it will offer you lower interest rates on all types of loans, and will also provide you with higher interest rates on savings and checking accounts. 

In many cases, the average difference in interest rates between the two can be as much as two percentage points, meaning you could save thousands of dollars in interest costs on a loan.

Services and Conveniences

If you want your financial transactions to be extremely convenient and have access to a wide array of services, banks tend to get the nod in these areas over most credit unions. 

As banking has moved online, even the smallest banks tend to offer their customers mobile apps that allow most transactions to be done through a smartphone.

Insurance Protection

Just as banks are insured by the FDIC, credit unions such as the Credit Union of Denver also protect the money of their customers by having insurance protection from the National Credit Union Administration. 

Like the FDIC, the NCUA insures deposits up to $250,000, meaning you can have peace of mind no matter where you are keeping your money.

Educational Resources

When you visit a bank, you probably are not going to find many resources available to you regarding how to learn more about making your money grow. However, credit unions do this and much more. 

In fact, most credit unions are well-known for offering workshops and seminars on investing, how to manage credit cards, how to stay protected from identity theft, and other important topics. 

Also, most credit union customers tend to feel that credit unions offer more of a personal touch than traditional banks.

Since credit unions and banks offer various advantages in certain areas, the choice of which one to use comes down to personal preference. 

However, if you like better interest rates, a personal touch when doing business, and being educated about your finances, a credit union may be worth exploring.