How to choose between national banks, online banks, and local banks and credit unions

Innovative technologies and changing demographics are forcing banks to evolve in order to remain competitive. Over the past twenty years, the use of online banking has exploded. Now there are banks that only offer online services with no physical branches. On the other end of the spectrum, new local banks are popping up and growing rapidly. With so many options, deciding which type of bank is best for you can be an overwhelming decision. Below are observations on where distinct types of banks excel and fall short:

Large National Banks

These well-established large banks are in most cities around the country. They typically have very robust technology and online banking systems. These types of banks work well for people who are comfortable with technology and want to have a physical branch presence. A checking account that you use to automatically pay bills electronically (“automatics” account) and make online payments works perfectly at this type of institution. 

The big downfall we have seen with these banks is the difficulty encountered when a transition happens. If a loved one becomes incapacitated or dies, it can be almost impossible to navigate the legal maze without personal, local service. If you bank at one of these institutions, we recommend adding a “transfer on death” designation especially if there is not a joint owner. While that advice holds for all bank accounts, it is especially important when dealing with a larger, more impersonal bank.

Online Banks 

Online banks have no physical branches and offer high yield savings products. These accounts work well for savings (or saving-to-spend) accounts for those comfortable with online banking. These banks tend to pay the highest CD, money market and savings rates. To deposit or withdraw money, your only options are typically electronic (online transfers or remote check deposit). The same caution applies to these banks as mentioned above with the large, impersonal banks. If you run into a problem or need special help, you’ll be dealing with a call center and not a local human being. 

Local Banks and Credit Unions

Local banks come in a variety of sizes – there is a variety of options and services available. Local banks shine in their customized, personal service. They tend to be more helpful in resolving problems that may arise. They typically can offer higher interest rates and better financing options than the big banks, although that varies by bank. For transactions that can typically be a chore, like refinancing a mortgage, our feedback from clients is that the local banks are better at minimizing the hassle factor. If something goes wrong or a transition happens, it is nice to have a person who can give you personal assistance instead of talking to someone in a national call center. On the other side, local banks often lag the bigger banks in technology. This is an area where banks are investing heavily and making improvements. 

There is no one perfect bank for everyone. They each have their areas that make them the right choice (or wrong choice) in different circumstances. In fact, I personally have accounts with all three types of banks each serving different purposes. 

As always, we are here for you. Please email or call if you want to set up a Zoom videoconference meeting or talk by phone.

Mary McCraw, CFP®

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