What you need to know about banks, S & Ls, credit unions and online banks

Managing Your Banking

by Debra L. Karplus, MS, OTR/L

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Great-grandma may have hidden a stash of money under the mattress, but even in today's erratic economy, that's not a particularly safe place for you to protect your cash. Your money needs its own home. Banks, savings and loans, and credit unions of all sizes seem to pop up in your town on busy corners, in the mall, and on campus. Which is best for you?

You want to keep your financial life uncomplicated, but you need a financial institution that suits your personal needs. For saving, look for access to a checking account and certificates of deposit (CD). For borrowing, you are seeking for a place that offers consumer, auto, home equity loans, and mortgages. For investing, you need retirement products. How do you find the right partner for pursuing your financial goals? You'll want to research services offered, safety of your money, and interest rates when choosing where to bank.

Financial institutions evolved in the mid-1800s, but with the American Industrial Revolution and the 1900s came the growth of banking. Banks are businesses, and like other businesses, there are various types and ways that they manage their expenses and their overhead, and pass their savings along to others. This is where you'll find major differences between banks, savings and loans, credit unions, and online banks.


Sometimes called savings banks or commercial banks, your local bank will generally offer you the greatest variety of services, compared to other financial institutions. Banks are for-profit corporations owned by shareholders. If you own shares of Bank of America (BAC) or Busey Bank (BUSE), then you own part, a very small part, of a bank. When a bank is profitable, earnings are passed along to the shareholders. Because banks have higher operating costs and overhead than other kinds of financial institutions, they generally offer their customers lower interest rates on savings, and higher interest rates on loans. Banks are managed by a paid, elected Board of Directors. The Federal Deposit Insurance Corporation (FDIC) protects $250,000 of your money at the bank.

Banks may offer special deals for student, senior citizens or other groups. No minimum balance checking accounts or free checks are a common offering. Additionally, sometimes they have gimmicky, but worthwhile products, such as one bank that offers a rate on CDs that goes up each time the local college football team wins a game.

Savings and Loan

Specializing in mortgages, Savings and Loans, known as S & L, are also corporations, but are categorized differently than banks by the Federal Reserve. Savings and Loans offer most of the same services as banks. Often, you will find better interest rates at a Savings and Loan. The Federal Savings and Loan Insurance Corporation (FSLIC) insures your first $250,000 at the S & L.

Credit Union

Though credit unions offer most of the services of other financial institutions, they are very different from banks and savings and loans in some fundamental ways. Credit Unions, which became popular in the 1920s, are not-for-profit (for service, not for charity) cooperatives. Their mission is to promote thrift. They are cooperatively owned by members, not by shareholders. By having lower overhead and expenses than banks, credit unions are able to pass the savings along to credit union members via higher savings interest rates and lower loan interest rates.

Credit union size varies. You'll find both large and small ones. Often Credit Unions are part of large businesses. As an employee, you may join.

Credit unions are managed by a volunteer Board of Directors selected from its memberships. They are regulated by the National Credit Union Administration (NCUA) and are usually federally insured. There are several online resources that can tell you how safe your credit union is.

Online Bank

You've seen the ads on the Internet for Fidelity Smart Cash and the like. You might find the best deals at these and other online banks. Basic cash management services are available, such as checking accounts, ATM, online bill paying, and credit cards. Because these banks have comparatively lower overhead, they may offer you the best interest rates of any financial institution. Look for special online offers. You may get a bonus or higher interest rate if you're beginning a new relationship. The FDIC protects your money in an online bank.

With so many banking options today, you'll want to evaluate what products and services are available, what safeguards are in place to protect your money, and who offers you the best rates for your needs. And, don't forget to get appropriate financial advice when necessary.

Debra is an occupational therapist, accountant, teacher and freelance writer. She is a writer for Advance for Occupational Therapy Practitioners. She also writes for Grand Magazine, has some items (fiction and non fiction) selling on Amazon.com (kindle), has written several travel articles for the Champaign-Urbana News-Gazette and several articles for freelancewriting.com and volunteers as a money mentor for the University of Illinois Cooperative Extension money mentoring program. Learn more about her at DebraKarplus.blogspot.com.

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