What is the Best Way to Bank for Your Buck?

Bank. Commercial bank. Online bank. Community bank. Thrift. Savings and loan. Credit union. Consumers have plenty of choices whether they need a checking account, home loan, business credit line or other banking product or service. Here's a quick look at four ways to do your banking and how the institutions differ.

Bank

Banks are financial institutions that accept demand deposits and make commercial loans, says Sarah Grano, a spokeswoman at the American Bankers Association, a trade organization in Washington, D.C.

Commercial banks generally are larger, federally chartered banks that offer a broader selection of products such as deposit certificates, credit cards, debit cards, auto loans, student loans and foreign currency exchange. Very large banks also offer such additional services as insurance, trust management, estate planning and investment accounts.

The biggest U.S. banks include Bank of America, Wells Fargo, Chase and Citibank. Foreign banks such as Deutsche Bank, HSBC and Barclays also have U.S. operations, catering mainly to major corporations and wealthy individuals.

Online banks are banks that have few, if any, physical branch locations and instead offer services primarily through a website or smartphone.

Thrift

Thrifts are financial institutions that focus mainly on deposit savings accounts and home mortgages, but they also offer other financial products, Grano says. Savings banks, savings and loan associations and mutual savings banks are examples of thrifts.

A savings and loan association is sometimes denoted by the shorthand "S&L." This type may hold a state or federal charter and be a stock-ownership corporation or a mutual savings bank owned by the depositors and managed by a board of trustees. Federally chartered thrifts are regulated by the U.S. Office of Thrift Supervision.

Community Bank

Community banks are financial institutions that offer banking products and services, but they are local or regional in scope rather than national in reach, says Terry Jorde, a senior executive vice president at Independent Community Bankers of America, an industry association in Washington, D.C.

A community bank could be a commercial bank or thrift, depending on its charter, focus and ownership structure.

Community banks, by definition, don't have the scope or scale of national commercial banks. Instead, community banks have a "close symbiotic relationship" with local industries, businesses, families and individuals, Jorde says. Depending on the nature of the local community, a community bank might offer more banking services for seniors, more loans for farmers or more mortgages for homeowners.

"The community bank, because it lives and dies on the success of that community, has people who are trained to understand what their customers need (and) what their community needs," Jorde says.

Community banks typically concentrate on maintaining small-business loans, collecting deposits locally and making decisions to lend money to enterprises that create jobs in the area.

That local focus doesn't mean community banks are folksy, however. Jorde says they offer online and mobile banking and a wide range of products and services. The difference is not a matter of what's offered but how the business is conducted.

"Community banks are a people business," Jorde says.

Credit Union

Credit unions are not-for-profit cooperatives that offer banking products and services, says Patrick Keefe, a spokesman for the Credit Union National Association, or CUNA, an industry group in Washington, D.C.

Unlike commercial banks or thrifts, credit unions are membership organizations, more like clubs than corporations. Memberships are typically open to individuals based on a common employer, professional association, military service, religious affiliation or geographic area.

"Not anybody can join any credit union," Keefe says, "but somewhere there is a credit union for just about everybody. There are 7,400 credit unions nationwide, so somebody can find one somewhere."

To join, new members typically must purchase a share of the credit union, usually at a cost of $5 to $15. The smallest credit unions have fewer than 1,500 members. The largest have 50,000 members or more.

Nearly all credit unions offer savings and checking accounts and consumer loans, Keefe says. The bigger ones also offer some other financial products and services. For example, approximately one-fourth offer business loans, while hardly any offer farm or development and construction loans, according to a CUNA survey.

Credit unions enjoy a federal tax-exempt status that helps them offer banking products and services with lower fees. Keefe says members save $74 annually, on average, "just by doing business with the credit union." People who have multiple accounts and loans might save even more.

By understanding what each type of banking institution does, consumers are likely to find the one best suited to their needs.