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The Pros and Cons of Non-Bank Banking

Written by: Kristy Welsh

Last Updated: September 11, 2017

Banks aren’t the only ones in the “banking” game. Besides using one of the big-box banks, you can choose to park your money at a credit union, money market mutual fund, or a cash management account. But is it worth the switch? You decide.

Credit Unions

If you’re less-than-thrilled with your bank’s checking and savings options, consider the alternatives, which is not to say consider another bank. Credit unions not only offer more attractive checking and savings accounts than your bank. They also tend to be more customer (or in this case, member) friendly.

Pros

  • Non-profit, member-owned. You reap the benefits via lower interest rates on loans and higher interest rates on savings.
  • Lower fees across the board. Another benefit of credit unions’ non-profit status.
  • CO-OP ATM network. Many credit unions have joined forces to provide more ATM access to members, sharing ATMs with one another at no additional cost to customers.
  • Bad credit not so bad. At least relative to a traditional bank’s take on the issue. Credit unions are far more accepting of less-than-stellar credit when it comes to extending loans to members.
  • Insured up to $250,000 by the National Credit Union Share Insurance Fund (NCUSIF).

Cons

  • Eligibility requirements. You cannot just walk into any credit union and open an account. You must join first and doing so requires meeting certain eligibility requirements. Find one you’re eligible for via the credit union locator of the National Credit Union Administration.
  • Fewer bells and whistles. Expect to see the biggest difference in rewards programs and online account services.
  • Rising fees. Though credit union fees are still lower than banks, that’s not to say fees will not go up in the future. Keep an eye out.

Money Market Mutual Funds

If you’re considering, or already have, a money market deposit account with your bank, you may want to opt for a money market mutual fund instead, offered by mutual fund companies.

Pros

  • Typically higher returns on investments than a money market deposit account (or savings or checking account, for that matter).
  • Investments are relatively low-risk (e.g., CDs, Treasury Bills, etc.)
  • Money is easy to access, as you can write checks and make withdrawals on the account.

Cons

  • Minimum opening balance required.
  • Minimum daily balance required.
  • May limit checks and withdrawals.
  • You will pay fees.
  • Not usually FDIC-insured.

Cash Management Accounts

If you have a nice chunk of money to invest but aren’t ready to tie it up in a long-term, difficult-to-liquidate investment, consider a cash management account through a brokerage firm. This allows you to combine the best of banking and investing options.

Pros

  • Money in the account earns money market rates.
  • Write checks and make deposits, as you would with a regular bank account.
  • Use an ATM debit card, as you would with a regular bank account.
  • Insured up to $100,000 by the Securities Investor Protection Corporation.

Cons

  • Requires a minimum opening deposit.
  • You will pay fees.

If the change you’re ready for isn’t quite as drastic as all that, consider mobile banking or online-only banking via sites like Ally and iGOBanking.