The Business of Banking
In the beginning, every financial facility had a certain group of functions they were allowed to perform. These regulations were strictly enforced not allowing them to overstep their boundaries unless they wanted to deal with stringent consequences. These laws were put into effect after the stock market crash and the Great Depression to protect banks from failures and over extension of loans. Banks were allowed to only provide the normal checking accounts, personal loans, commercial banking for businesses and other short-term loans. They were not allowed to provide any other financial services such as insurance or investments products. Alongside this regulation came the Federal Deposit Insurance Corporation, which provided protection for those depositing their money into the Banks.
After a stabilizing of the economy, there came deregulation. This lifted the previous restraint on banks and allowed them to venture into providing other financial services other than the simple checking account etc. They were not only allowed to provide investment products and insurance but they could also do business in home mortgage as well as home equity loans. This allowed Banks to become a one-stop shop for their customer’s financial needs.
Types of Banking Facilities
Not only did deregulation open up doors for Banks but it also opened up doors for other Banking Facilities to compete for the attention of financial customers. Banking Facilities such as Savings and Loans, Savings Banks and Credit Unions began to emerge. The FDIC protects some of these Banking Facilities however some are not protected.
An important point to remember is that, in advertising, anyone not protected by the FDIC are required to say so while those that are protected by the FDIC will also say so. Therefore, even though you may find a better deal at a Banking Facility that is not FDIC insured it would probably be wise to go with a facility protected by the FDIC ensuring that your money is safe.
Savings and Loans
These are often called S&L’s or Thrifts. They are known for providing a certain level of financial service for a long period of time. They are mainly in the business of collecting deposits for savings accounts or to go towards loans. Their history was in dealing mainly with the housing market. Many of them were organized as “associations”. This meant the customers who held accounts with them were owners of the Thrift or S&L. This posed a problem, as due to this type of organization the Thrift was unable to sell stock so that they could make money to grow.
During the emergence of deregulation, a lot of the Thrifts changed their organization towards corporations and also found themselves diving into commercial real estate lending. Due to Thrifts being more geared towards savings and unable to compete with the larger Banks the majority of them are located in smaller towns rather than big cities.
Also included under the umbrella of Savings and Loans are Credit Unions and Savings Banks.
Credit Unions
Credit Unions are similar to the earlier days of Thrifts. They started out as a savings club with members only being allowed to join if they met the requirements. A lot of these requirements were living in the same place, working at the same place or something else that was common amongst all of its members. Nowadays the qualifications for becoming a member have become a little more lenient and you could very well find a Credit Union that only requires you live in a certain city or county to become a member.
Credit Unions started out making personal loans to its members and then eventually graduated to auto loans. Due to their non-profit organization they were able to provide loans with lower interest rates and savings with higher rates. Another reason they are able to offer better rates is because they are not required to pay federal taxes. This gives them a big advantage over Banks and S&L’s. One other difference between Banks and Credit Unions is that The National Credit Union Administration, not the FDIC, protects the Credit Unions customers’ money up to $100,000 and governs them.
A few disadvantages of Credit Unions are that they usually don’t have multiple locations and they may be able to offer good rates on some financial products but not all of them. That’s why it is always important to shop around various Banking Facilities before you commit to a product.
Savings Banks
This type of Banking Facility has decreased in number rapidly due to its functions overlapping with those of Banks and S&L’s. Once very popular, especially on the East Coast, Savings Banks are now obsolete due to deregulation. Their initial functions saw them growing rapidly because they could function like a Commercial Bank, in that they were able to offer business loans as well as like a Thrift in that they could receive payments on these loans and savings accounts. However, once the deregulation occurred allowing Banks to do the same the services, Savings Banks were no longer needed as the customer could get all of their financial needs met at a Bank.
Which Is Better?
When it comes to choosing which type of Banking Facility is best for you, it is really about choosing the one that provides the mixture of products that best suits your needs. You may want to think about the products you need now and how this may change in the future. Another factor to consider would be location. If you feel you are settled in your area then you can focus more on personalized customer service rather than presence. However, if you feel you will be moving, or you tend to travel a lot the local Credit Union may not be as convenient as a Bank with a national presence.
No matter which Banking Facility you choose just remember that you are not locked in to purchasing products from that institution alone. You are always free to shop around for deals that will work to your benefit.
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