(Gloucestercitynews.net)(June 10,2019)--In the United States, there are over 13,066 financial institutions. Although the number of financial institutions is high, not all of them are created equal.
If you're wondering what's the best financial institution to save or invest your money in, there are a few things you need to know before you make the move.
In this guide, we'll cover 9 types of financial institutions and their services. Read on to get started.
1. Internet Banks
As many banking customers know, there are many banks that have physical branch locations and online access to their accounts. At these locations, you can open accounts, make deposits, and get access to cash. Meanwhile, you can monitor all of your transactions online.
With an online bank, however, you only have access to your banking information online. All of your banking needs are taken care of via computer or app access.
Many clients prefer internet banks because they offer lower fees, convenience, security, and free access to ATMs.
Because internet banks don't have to pay for branch maintenance and staff, they have lower banking fees. Not to mention, online banks don't charge their customers ATM fees since they have access to a wide network.
Internet banks care about the confidentiality of their clients' information, so you don't have to worry about them not being secure.
The only issue with online banks is that there's no in-person assistance, difficulty depositing cash, and limited banking options.
If you want to compare online banks and find out which one provides the services you're looking for, check out this review site.
2. Central Banks
The regular public doesn't hear much talk about central banks, and why would they? Central banks don't serve the public directly.
In fact, central banks oversee the management of all the banks in the region. The Federal Reserve Bank is the central bank in the United States.
Since the Federal Reserve Bank supervises and regulates the monetary policy, it only works with large financial institutions.
3. Insurance Companies
Insurance companies are the type of financial institution in charge of helping individuals and companies manage the risk of loss.
Although not many people think of insurance companies as financial institutions, insurance companies help protect against loss. They protect individuals and businesses against liabilities, fires, death, accidents, and more.
4. Savings and Loan Associations
Also known as S&Ls, savings and loan associations focus on providing residential mortgages to their customers. Even though S&Ls are more local based, they still provide other loan services, checking accounts, and debit cards to their clients.
Unlike commercial banks, by law, S&Ls can only lend 20% of their assets towards commercial loans. And half of that income can only go to small business loans.
5. Investment Banks and Companies
An investment bank is not your typical financial institution. Individuals can't just show up to an investment bank and try to make a cash deposit.
The purpose of an investment bank is to offer a variety of services that involve complex and large financial transactions and investments.
Investment banks and companies help those who businesses or individuals who want to invest large capital with the underwriting process, mergers, act as an intermediary, and much more.
These types of financial institutions are also known as mutual fund companies.
6. Credit Unions
Credit unions are a type of financial institution that provides banking services similar to traditional banks. Most credit unions vary in size and services.
While some credit unions are small operations run by volunteers, others are large organizations. In fact, some large corporations form credit unions with the sole purpose of serving their employees or corporate partners.
The business model of credit unions is quite simple. If a member of a credit union puts money into it, he is buying a share of the cooperative. The income that gets generated by the investments helps benefit other members and provide funding for products.
Since most credit unions are not-for-profit organizations run by their owners and participants, they can file for tax-exempt status.
7. Brokerage Firms
Unlike other financial institutions, brokerage firms specialize in transactions.
As the middleman, a brokerage firm connects buyers and sellers and facilitates the transaction process for them. While other financial institutions charge a flat fee for banking and loan services, brokerage companies often work on a commission.
Depending on the agreement, the commission can be a flat fee or a percentage of the sale.
One example of the brokerage firm model is the real estate industry. The real estate broker is in between the buyer and the seller to ensure the process is completed with the least amount of issues.
Once the sale of the home or commercial property concludes, the broker receives a commission.
8. Retail and Commercial Banks
There used to be a division between retail and commercial banks. Retail banks will typically offer banking services to consumers, and commercial banks will only serve businesses.
Nowadays, most large banks offer retail and commercial services serve individuals and businesses.
The products offered by these banks include savings and checking accounts, different types of credit cards, personal loans, mortgage loans, business banking accounts, certificates of deposit, and more.
9. Mortgage Companies
Mortgage companies are financial institutions of all different sizes that specialize in providing funding loans for commercial and residential property owners.
These financial institutions often call themselves the originators of the loan for individuals, when in fact, they seek funding from other financial institutions to obtain the capital for the loan.
Think back to the mortgage crisis of 2008. Most mortgage companies had to file bankruptcy because the obtain the funding from other lenders and their assets weren't sufficient.
There are a few mortgage companies that offer origination, loan funding, and additional services.
Types of Financial Institutions: The Bottom Line
The most prevalent financial institutions include mortgage companies, retail and commercial banks, brokerage firms, online banks, credit unions and more.
Now that you know about the different types of financial institutions, it's time you make a decision about your money and investments.
published Gloucestercitynews.net | June 10, 2019