Alternatives To Big Banks

Using banks has become a common thing in today's world. You might also have a bank account where you can not only keep your money safe but also do other things that involve money and day-to-day transactions if you work for a corporate business or run your own business. The business, whether a corporation or your own business, may have a business bank account that may do business transactions through the banking services provided.

Traditional banks and their banking services, like savings accounts, online banks, cash management accounts, and other services, play an important role. This is because banking services help you not just save your money but also manage it. But just like other services, there is a banking issue as well, and that is that there are many financial institutions.

Reasons Why People Are Looking For Alternatives To Traditional Banking

There might be many traditional banks in your area. You might be going for something different, opting for better banking services, alternatives to traditional savings accounts, and better financial institutions. You might be searching for alternatives to traditional bank accounts, and there are reasons why you may be searching for traditional bank alternatives. The following may be the reasons.

Strict Rules

Traditional banking has really strict rules when it comes to businesses using their services. If you want to open many business bank accounts, want to do online banking, or get a loan, they always ask for a bunch of documents that are needed. There are even more strict requirements from small banks when asking for small business loans. This is because small business loans are risky for small banks. That is why it is tough for them to get approval from large banks for small business loans.

There are also a lot of policies that can lead to people being annoyed by the banking services, like asking too many questions regarding accounts and things like pet names and so on. Of course, these are done for security reasons, but these can be a lot annoying for some people, especially if they are in an emergency.

The Fees Costs

Traditional banks can be expensive to work with, especially when it comes to banks' monthly fees, international transfers, and wire transfers that offer fewer services. These costs can accumulate and create difficulties for businesses in maintaining their profits. Moreover, interest checking accounts usually require monthly fees and a minimum balance to avoid them, but they often provide low yields. The average annual percentage yield (APY) on interest checking accounts is only 0.05% in 2023.

When it comes to international transfers and wire transfers, the fees involved can include bank service fees, intermediary or correspondent bank handling fees, and foreign currency exchange rates. As a result, the costs can vary widely, ranging from USD 0 to USD 65 or even higher.

Fortunately, there are alternative financial institutions that may offer better exchange rates than traditional banks.

Not a bank account provides services without getting their fees paid. Similarly, it is applied to the loan process. The big banks would give high interest rates to the people who have taken loans from them. This will increase their expenses as well, and if it's a small business, then it might have a high effect on it.

Long Process Time

Traditional banks often have a lengthy process for tasks such as opening an account, getting a loan, or sending money internationally. This is because they may ask you to go to physical branches, provide extra documents, or wait in long lines for approval. These delays can be caused by a large number of customers or stricter requirements.

Traditional banks aren't your only options. There are alternatives to traditional banks as well.

Alternatives To Big Banks

There are many banking alternatives that you may find easier to use than your normal big banks. Some of these alternatives may provide fewer services and might be different than your traditional bank. The following are the alternatives to the top 5 banks in Canada.

Credit Unions

The most common alternatives to big banks are credit unions, which sometimes create competition between Credit Unions and banks. If you want to earn more interest on your savings, consider looking into Certificates of Deposit (CDs). CDs are available at banks and credit unions, where you invest money for a set period in exchange for a fixed interest rate. Rates vary depending on the provider, amount invested, and duration. CDs can last from a few months to 5 years. Generally, the more you invest and the longer you keep it, the higher the interest rate - but there are penalties for early withdrawal. Learn more about CDs here.

If you're seeking a banking alternative to earn a higher interest rate on your savings, consider exploring Certificates of Deposit (CDs). CDs are available at various banks and credit unions, where you invest funds for a fixed period in exchange for a predetermined interest rate. Rates offered depend on the provider, amount invested, and duration. CDs can range from a few months to 5 years. Typically, the more you invest and the longer you keep it, the better the interest rate - but early withdrawal may incur penalties. Plus, there are no charges for monthly fees when you open an account in a credit union.

Credit unions cater to customers who share a common bond, such as their residence, workplace, or affiliation with a charitable organization. While many credit unions prioritize serving local communities, resulting in smaller branch networks, there are also notable exceptions like the Navy Federal Credit Union. This particular credit union serves individuals employed by the armed forces, Department of Defense, veterans, and their families.

Several credit unions provide online services and products with the same financial services compensation scheme FSCS protection as regular banks. Yet, some credit unions may have restrictions on the maximum savings allowed in an account.

If you want credit union banking services, then before selecting a credit union, make sure to see if you qualify for membership. Many credit unions allow family members of current members to join, so it's a good idea to check if any of your family or household members are already part of a credit union.

The Online Bank And Neobanks

Online banking has become an important way of moving cash online or using applications. Just like traditional banks, online banks usually have their banking license. Neobanks, community banks are small banks that offer a range of banking services through websites or mobile apps. Neobanks, also known as fintech companies, Although they are not actual banks, usually collaborate with FDIC-insured banks to ensure the safety of your money.

Neobanks are primarily online-based and may provide features similar to those of digital banks. However, they may also offer additional features that are not available with traditional banks or credit unions.

Some online banks and neobanks provide specialized services such as currency exchange, international payments, credit and loans, or offerings tailored for underserved customers. Meanwhile, other providers offer a broad array of products and services similar to those of a traditional bank.

The advantage of online banking is that they are a financial technology company. Financial technology companies for online means that they strive to stay updated with advanced technology, enabling them to offer more advanced banking services.

The Money Market Mutual Fund

Certificates of Deposit require you to lock away your money for a long time. If you want a reliable return on your savings but need quick access to your money, a money market mutual fund could be a better option.

Money market funds offer financial services and invest in high-quality, easily convertible assets. Many focus on purchasing government-backed assets for added security and peace of mind. These funds are generally dependable and offer a consistent return rate, although it's important to note that returns are not guaranteed with any investment.

While the return rate from money market funds may be lower fees, it's possible that overall increases in the cost of living could overshadow the amount of money you make. Nonetheless, money market mutual funds remain a popular choice, primarily because it's easy to withdraw your money whenever you need it.

Regional Banking

Regional banks are usually smaller than national banks and give services to specific geographic areas. This can be beneficial for small businesses operating within a particular region. Regional banks often provide competitive interest rates on deposits and do not charge monthly fees. Not only that, but they also tend to have fewer loan requirements compared to national banks.

Some common services offered by regional banks include savings accounts, checking accounts, credit cards, ATMs, investment products, various types of loans such as small business loans and mortgage loans, and insurance.

Community Banks

Community banks are different from your normal traditional banks. It is mainly used for businesses that need banking but with other financial services as well. Community banks provide services to the people and businesses in their local areas. They are known for their smaller size in terms of assets, with the Federal Reserve setting the limit at less than $10 billion.

Community banks usually provide attractive interest rates for deposits and do not charge monthly fees. Additionally, community banks tend to have more lenient requirements for loans than larger national banks. The services they provide are saving accounts, debit cards, small business loans, certificates of deposit, and much more.

The Payment Services

Payment Service Providers are online platforms that allow businesses to manage payments using the Internet and mobile devices. Many payment services offer a mobile app for added convenience. These systems make it easy for funds to be transferred from buyers to sellers using various methods, including credit and debit cards, digital wallets, and interlinking with the banking services provided.

Additionally, they can be utilized for different purposes, such as serving as payment options for e-commerce websites, bills, and regular money transfers. Instead of relying solely on traditional bank transfers, businesses can connect these solutions to their business accounts, expanding the range of payment methods accessible to partners and customers.

The Offshore Banking

Offshore bank accounts are accounts located in a country where you are not a resident. In business terms, it's an account in a different country from where your company is registered.

Offshore banking is useful for individuals with connections to different countries, like expatriates, retirees abroad, property investors, those supporting families in other countries, and those involved in international business. These accounts simplify international finances and transfers in different currencies.

Your business may benefit from lower tax rates compared to your local country. However, it's important to inform tax authorities in your country of residence about your offshore accounts and disclose any interest earned from them. The services offshore banks provide services like digital banking, multi-currency accounts, wealth management, and foreign exchange providers.

Peer-To-Peer Lending

P2P lending, also called crowd lending or social lending, is a financial technology platform that enables individuals to lend or borrow money from each other directly. It is commonly used in business to borrow funds from individual investors. In P2P lending, businesses request a loan on a P2P platform, and interested investors can choose to fund the loan.

Interest rates on P2P loans are usually lower than those offered by traditional lenders like banks. This is because P2P investors don't have the same overhead costs as traditional lenders. On the other hand, P2P lenders can earn a better return on their savings compared to a traditional bank savings account.

Conclusion

Using a traditional big bank is important for many businesses. The banks themselves are not that important, but the services they provide are. These services help many people and businesses with daily transactions and keeping money safe. But you might be looking for alternatives to traditional banks for many reasons, including fees and so on. Well, there are many other alternatives to big banking services. These include online banking, credit unions, and so on.