Do you do your saving at a bank, a thrift, or a credit union? Is it a national bank or state-chartered? Here’s how to know the difference.
Commercial banks have traditionally been the largest source of loans to small businesses. They also make consumer loans, including mortgages, and offer credit cards, deposit products and checking accounts for everyone.
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Banks can offer insurance and investment products such as mutual funds and IRAs through separate companies within the same bank holding company. Many banks also offer trust services, estate planning and asset management.
Banks vary in size from megabanks with hundreds of branches nationwide to small community banks that specialize in serving the needs of the local clientele. Many banks are publicly held corporations.
What is the Federal Reserve?
The Federal Reserve is the United States' central bank. It controls the flow of money in and out of banks and maintains the stability of the financial system. All national banks must be members of the Federal Reserve. Membership is optional for state banks.
National banks are chartered, regulated and supervised by the Office of the Comptroller of the Currency; headquartered in Washington, D.C. National banks have "National" or "N.A." in their name.
State banks are chartered, regulated and supervised by their state's banking division. The Federal Deposit Insurance Corp. is the federal regulator of state-chartered banks that don't belong to the Federal Reserve System.
Thrifts have come a long way from the days when they only offered savings accounts and mortgages. Today's thrifts offer checking accounts and provide business and consumer loans as well as mortgages.
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Thrifts can be owned by their shareholders (stock ownership) or by their depositors (mutual ownership). They can be either federally or state chartered.
While there are some differences between savings banks and savings and loan associations in terms of how they are set up, Congress has removed all differences between the federally chartered facilities as to the kinds of loans and investments they can make.
The Office of the Comptroller of the Currency is the primary regulator of federal and state chartered thrift institutions, which include savings banks and savings and loan associations.
Credit unions are nonprofit, cooperative financial institutions. Traditionally, people with a common bond have formed them -- they work in the same industry or are members of a particular workers' union, share the same religion, etc. Today, the membership restrictions have softened significantly. Many credit unions simply require that you live or work in a certain geographic area in order to become a member.
The vast majority of credit unions in the United States are federally chartered or state chartered credit unions that are federally insured by the National Credit Union Association, or NCUA.
Credit unions may offer higher interest on deposit products than banks or thrifts; and they may offer loans at lower rates. Credit unions are exempt from federal taxation.
The NCUA is the federal agency that charters and supervises federal credit unions and insures deposits in federal credit unions and state credit unions that are federally insured. Like the FDIC, the NCUA insurance covers the balances of members' share accounts up to $250,000 per person, per account type, per institution. If you're unsure about whether all your assets at a credit union would be covered, the NCUA has a Share Insurance Estimator to help.
Online banks, which usually have no brick-and-mortar branches, first gained attention by offering higher rates on deposit products than traditional banks. While that is still true to some extent, the rate differences are not as significant as in the past.
You'll want to make sure your potential online bank offers the following:
- Insurance up to $250,000 from the Federal Deposit Insurance Corp.
- 2-factor or multifactor authentication.
- Encrypted transactions.
You should research a virtual bank's policies and customer reviews, the way you would with any bank.