Banking looks much different today than it did decades ago and the technology has come a long way. With so many options available for how and where to bank, finding the best choice for your money and future can be a tough decision to make. Understanding the differences can help you make the best decisions for you and your family.
When it comes to finding a safe place to keep your money, getting a loan for a car or house, and/or building credit, there are key factors you need to know before making a decision. Understanding the difference between the various financial institutions and their services will help you determine which one is a better fit for your unique needs.
A bank is a for profit financial institution that offers financial products and services such as savings, checking, credit cards, loans, and other financial services to individuals and businesses. Banks are owned by stockholders, are insured by the Federal Deposit Insurance Corporation (FDIC), and offer traditional brick-and-mortar branches or digital branches that allow you to manage your money exclusively through an app.
Banks are governed by paid, elected Board of Directors chosen by its stockholders. They are legally bound to make decisions in favor of stockholders, not their customers. Since banks are for-profit institutions aimed at maximizing profits, their rates and fees are typically higher than those of a credit union. It can also be more difficult to qualify for a loan for this same reason.
A neobank is a financial technology company that provides banking services via mobile app or website. Banking options may include the ability to transfer money electronically, pay bills, and receive direct deposit or mobile check deposits. Some of these fintech providers also offer tools to help with budgeting and saving.
Financial technology (better known as fintech) is used to describe new technology that seeks to improve and automate the delivery and use of traditional financial services. The term fintech was originally applied to the technology employed at the backend systems of established financial institutions. From 2018 or so to 2022, there was a shift to consumer-oriented services. Fintechs now includes different sectors and industries such as education, retail banking, fundraising and nonprofit, and investment management, to name a few. Fintech also includes the development and use of cryptocurrencies, such as Bitcoin.
Neobanks such as Mint or Plaid, do not have brick-and-mortar traditional branches and offer less services than a bank as they focus on savings and checking more than loans. They generate most of their revenue through interchange fees and charging interest on loans and credit cards (as well as other fee income sources) and are not regulated in the same way as traditional banks. Neobanks are considered financial institutions instead of banks, so they don’t have a bank license with federal or state regulations. They typically partner with a regulated financial institution, so all deposits are insured by the FDIC.
A credit union is a not-for-profit financial cooperative that provides the same traditional products and services as a bank, but are also strong advocates for financial education and empowerment, smart saving habits, and sound credit use.
As a member, you’re considered an owner of the credit union which means you have an equal stake in the organization, regardless of how much money is in your account. Banks on the other hand are owned by stockholders and their customers do not have equal stake in the organization.
Credit unions are also regulated by the National Credit Union Association (NCUA) and governed by a volunteer Board of Directors who main purpose is to safeguard the credit union and its members.
While banks, neobanks, and credit unions may look similar in many ways, what sets us apart is our purpose – putting people first. Like any good neighbor you can count on us to be there whenever you need a hand and can trust we’ll always keep your best interests in mind. Whether you’re looking for a safe place to protect your hard-earned money, need a loan to buy a car or house, or are looking for advice to start your financial journey, we're here for you!