Trying economic times have put the squeeze on millions of families and individuals in the past twelve to eighteen months. Mostly everyone you know is looking for some way to save a pinch here or there or make an extra buck or two. One simple but often overlooked way to both save a little and earn a little is where you choose to have your checking accounts. The two basic choices available to consumers are small local community banks and credit unions or monolith multinational financial institutions. Researching and investigating checking account fees and interest rates, at your locally owned bank or member owned credit unions before opening an account at one of the thousands of branches of your nearest super bank could save you all the associated banking fees and earn you upwards of five percent interest or more on the balance of your checking account. Why and how is this possible you may ask?
In the case of credit unions the reason is two fold: first is that they have to compete with traditional banks and second by design they have a different mission and objectives.
Since the inception of credit unions in 1934 by the Federal Credit Union Act, passed by President Franklin D. Roosevelt, the traditional bank has viewed these competing financial institutions as an arch enemy. Credit unions are member owned, in simple terms this means you are not just a customer, you are part of the ownership of the institution. Credit unions are not for profit organizations, which operationally benefits them greatly as they are exempt from most federal and state taxes. This in turn allows them to offer their members much higher earned interest rates and lower charged interest rates on accounts of all types. When credit unions do earn profits, those profits are then distributed to its members as dividends. When the big bank earns profits or, as we have seen in recent history even when they do not earn profits they distribute multi million dollar compensation and benefit packages to their top executives, even in some cases where the institution may be on the verge of collapse and receiving billions of dollars and federal stimulus funds.
In the case of smaller local, community banks it is just a simple matter of trying to compete with the credit unions with they're distinct advantages over traditional banks as outlined above, and they're larger competitors with seemingly limitless resources for advertising and marketing, and with branch offices in almost every major city in every state in the union or in some cases every country in the world.
How to Choose
Your research and investigation should not only be limited to finding the institution that offers the lowest fees and highest interest rates. Typically you will find that the accounts that offer lower fees and higher interest rates have more specific and stringent requirements than others. Most commonly you will find:
- required minimum balance
- required minimum number of transactions
- required direct deposit or automatic payments
- monthly electronic (email) statements rather than traditional paper statements
Many accounts also only pay the higher interest rates on balances up to a specific threshold such as twenty-five thousand dollars. Balances in excess of the maximum would revert to a lower interest rate. Another item to take into consideration is that credit unions do have membership requirements, some are designated for employees of a specific company, industry, labor/trade union or social and religious organizations. Fortunately there are more than eight thousand credit unions in the United States alone and more than forty-five thousand world wide. With so many available virtually everyone should be able to find one that will be acceptable.