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Where: Financial Institutions

When talking about mainstream financial institutions, we are referring to (commercial) banks and credit unions that are licensed and regulated by the either the federal or state government.  The main purpose of both is to accept (cash) deposits, make loans, and act as intermediaries in financial transactions for customers, both businesses and individuals.  Although they basically function the same, there are some key differences worth noting.

The biggest difference is that banks are for-profit companies that make money from the fees they charge and from the interest paid by people who take out loans.  Banks often have a wide service area, sometimes operating across the country and may offer a wider array of products and services.  Member banks are guaranteed by the Federal Deposit Insurance Corporation, or FDIC.  This means that if the bank were to fail or file for bankrupcy, the FDIC would return your money, up the current limit of $250,000 per depositor, ownership category, and institution.  Having this insurance can help reassure people who are cautious about depositing their hard-earned money with such an entity. 

Credit unions are not-for-profit organizations that are owned by people who have something in common, i.e., work for the same company, part of a union, or live in a specific community.  In general, credit unions offer the same services as a typical bank—checking and savings accounts, but often use different names for these accounts.  For example, a “checking” account may be called a “share draft” account.  Credit unions may also have fewer fees, lower minimum balances, and higher interest on deposits but usually have a limited service area.   Credit unions have the same deposit insurance rules as the FDIC, but are guaranteed by the National Credit Union Administration through the Share Insurance Fund.

Whether you use a bank or credit union, it’s important to check on their regulation status (which government entity is overseeing the institution), compliance (if they follow the rules), and guarantees (deposit insurance).  The Office of the Comptroller of the Currency (OCC) or by the PA Department of Banking and Securities are two resources in which to start your search.

Sidebar: Online Banks vs. Online Banking

An online bank is just that: a bank that does not have physical branches where you can deposit or get money. Instead, you mail deposits, transfer money from other accounts, or have funds directly deposited (by your employer, for example). To get money out of your online bank account, you may need to use an ATM.

Online banking, on the other hand, is what your financial institution offers through its own website—such as bill payment, money transfers, or account information. Some institutions charge a fee for this service, others don’t. Online banking is just one more way to use the services of your financial institution.                         

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