If you’re tired of paltry interest rates on your savings accounts and the constant delays on transfers, then you’re among the 58% of Americans who are unhappy with their main banking provider.
Fortunately, the world of banking has been changing right in front of our eyes and there are now several alternatives to traditional banking.
Here are 5 non-traditional banks for those who want to make the switch:
1. Credit Unions
Credit unions are not-for-profit financial institutions that offer most of the services and protections of traditional banks.
The key advantage of credit unions over traditional banks is the fact that they are member-owned. This allows credit unions to charge fewer fees, better rates, and even return profits to their members via dividends.
Credit union deposits are also insured by the Share Insurance Fund, which is administered by the National Credit Union Administration (NCUA).
How Can I Join a Credit Union?
In order to join a credit union, you must share a ‘common bond’ or ‘field of membership’ with its members. This common bond with members could be any of the following:
- You have the same employer
- You’re related by blood
- You live/work/worship in the same area
- You’re a member of another organization or religion that they’re in.
If you don’t know where to start, visit NCUA’s official consumer website. Which also has a link to a credit union locator.
Should You Join a Credit Union?
A credit union has a lot of advantages over traditional banks, but it also requires a lot more commitment.
Credit union members often have to provide educational and financial assistance to consumers, schools, and small businesses that belong to their credit union. This fosters a cycle of mutual assistance that allows its members to improve their financial well-being.
Another thing to consider before joining a credit union is their lack of focus on the newest financial technology. So if you want to stay on top of the latest financial products and online banking innovations, credit unions may not be for you.
2. Community Banks
Community banks share a lot of similarities to credit unions but they typically focus on serving the residents in their community. Since community banks often reinvest in local businesses, choosing this type of bank allows you to contribute to the growth and well-being of your local community.
Community bank deposits are FDIC-insured, which means they provide the same protection as traditional banks. However the key advantage of community banks is their capacity to provide support to low-income households and small businesses.
Community banks can do this due to their personal relationships with their customers and their in-depth knowledge of the workings of their local community. Loan applications are also generally processed faster and have lower fees since community banks aren’t beholden to shareholders.
Should You Switch to a Community Bank?
The main thing to consider before choosing a community bank is your location and whether or not you plan to stay there indefinitely. So if you’re always traveling or if you haven’t put down roots, community banks are probably not for you.
Similar to credit unions, community banks also have subpar digital banking experience. This makes this option less appealing to those who primarily interact with their banks through their phones or computers.
3. Online Banks (Digital Banks)
Online banks or digital banks can only be accessed through their websites and mobile apps. Digital banks have fewer fees and better rates on account of their lower overhead costs due to their lack of a physical location. And since an online bank can only be accessed through its app and website, you can expect a superior digital banking experience.
Should You Switch to an Online Bank?
The biggest factors to consider before switching to an online bank are in-person customer support and cash deposits. If you make the switch to an online bank, then you’re going to have to suffer through virtual customer support.
It is possible to make cash deposits to an online bank but you’re going to have to go jump through some hoops to do it. For example, you can make a cash deposit in a traditional bank and then transfer that money to your online bank. Or you can purchase a reloadable debit card, load your cash in it, and transfer it to your online bank account.
At the end of the day, online banks are best used in conjunction with other bank types. At least until they find a better process for depositing cash.
4. Neobanks
Just like digital banks, Neobanks are also online-only. Which begs the question, what’s the difference between a Digital Bank and a Neobank? And the answer is surprisingly simple, Neobanks are not banks.
And since they aren’t banks, they don’t offer most of the services that traditional banks do. Most Neobanks are fintech apps that allow you to manage your money online. Some examples of the biggest Neobanks right now are Chime, Varo, Aspiration, and Current.
Even though Neobanks technically aren’t banks, they can still have FDIC insurance by partnering with traditional banks.
Should You Switch to a Neobank?
It’s difficult to describe Neobanks as a whole since their services could be quite different from one another. Aspiration for example allows you to lower your carbon footprint just by using their debit card. While Current allows you to build credit with everyday purchases.
Neobanks share the same downsides as Online Banks. However, since Neobanks aren’t banks, they aren’t as regulated which makes users more susceptible to scams if they don’t do their due diligence.
Being less regulated also means that it’s much easier to get approved for a Neobank account, which makes Neobanks a favorable options for those with low credit scores.
Summary
If you’re looking for an alternative to traditional banking, the best way to choose the perfect option is by figuring out what you want out of your bank.
If you want a high-commitment organization that fosters a cycle of mutual assistance, then a credit union is a good choice for you.
If you want to put down roots and contribute more to your local community, then go for a community bank.
If you want a superior digital banking experience then an online bank should be right up your alley.
If you want a superior digital banking experience that’s tailored to your specific wants and needs, then you might want to go shopping for a Neobank that fits your lifestyle.
