Alternative Banking – Exploring Different Banking Options
What are some alternatives to traditional banking? To understand alternative banking, you need to understand traditional banking. In the United States, the first central bank was created in 1790, but banking as a concept had been around since the Mesopotamian era.
With so much history in the ways to conduct banking, it’s no wonder that alternatives have arisen.
What is Alternative Banking?
Alternative banking refers to any kind of financial institution that strays from the traditional model of banking, like brick-and-mortar institutions that keep, lend, and borrow money. Banking alternatives provide more accessible platforms and out-of-the-box financial solutions that can help a greater range of consumers.
The Best Alternatives to Traditional Banking
A few alternatives to traditional banking are neobanks, fintech solutions, and online banks.
Neobanks
A neobank is a type of fintech that functions as a smaller version of a full-service bank. It usually has a smaller range of products and functions primarily on a mobile app. The neobank itself is not federally insured, but it typically partners with an insured bank to FDIC insure deposits.
Fintech Solutions
Fintech is a term that combines finance and technology. As the name suggests, the banking alternative is typically the intersection of those two things. Many people use fintechs every day. Examples of these include a finance management or budgeting service, peer-to-peer payment services, and investment platforms.
Online Banking
The third type of alternative banking is the largest and probably the most popular: online banks.
What is online banking?
An online bank is full service, FDIC insured, and functions 100% online. Online banks work similarly to a traditional bank, except they do not have physical branches. This allows online banks to offer distinct advantages.
Advantages
An online bank, while similar in functionality to a traditional bank, has some enticing advantages.
Because online banks do not have the overhead costs of brick-and-mortar locations, they can provide more affordable services and fewer fees. Similarly, because an online bank has a lower operating cost, it can offer higher interest rates on deposit accounts.
And because all the banking services are online, customers can access and manage their accounts anytime, anywhere. For people with busy schedules, this feature is highly advantageous.
Online banks typically have advanced digital security such as state-of-art encryption and multifactor authentication. Online banks are also usually insured by the FDIC, so deposits are protected up to $250,000 on a single account and $500,000 for joint accounts.
Comparing Online Banking vs. Traditional Banking
Traditional and online banking may seem similar. To provide clarity, see the pros and cons of each type of financial institution.
Pros to Online Banking
24/7 account access from any location.
Fewer fees and higher interest rates.
Avoid time-wasting bank trips.
Cons to Online Banking
No in-person customer service.
Some technological literacy is required.
Sometimes there are fewer account options.
Pros to Traditional Banking
Access to customer service representatives.
Option to visit a physical branch.
Longer history of banking.
Cons to Traditional Banking
Necessity to visit physical branches.
Less technology.
Higher bank maintenance fees.
Final Thoughts
When it comes to how you bank, the solution that’s right for you will be as unique as your situation. Whether you decide on traditional banking or alternative banking, be sure to evaluate the specific features of the institution you decide to use.
Don’t feel like you are trapped within the confinement of traditional banking. Explore your options with alternative banking.
FAQs
1. What is alternative banking?
Alternative banking is any type of banking that differs from the traditional brick-and-mortar bank model. This can include a variety of products and services, such as peer-to-peer lending, microfinance loans, and mobile banking. Typically, alternative banking is digital.
2. What is the best alternative to traditional banking for you?
The best alternative to traditional banking is determined by your lifestyle and financial goals. Consider your personal financial needs, comfort with technology, and preferences regarding customer service and account access when deciding which banking option is best for you.
3. Why use alternative banking?
Alternative banking provides options to those whose needs are not fully served by traditional banking. Because alternative banking is typically online, it provides easier 24/7 access.
4. Are online banks FDIC insured?
Most online banks are FDIC insured. Just check the site for the FDIC logo or use the FDIC website to verify.
5. Can I get customer service from an online bank?
Depending on the type of online bank, you can usually receive customer service. The quality of that service is dependent on the institution.