There are financial companies that have similar, and in some cases even better, cost advantages than the best banks that are focused online: mutual fund companies, discount and online brokerage firms and credit unions.
Mutual Funds and Money Market
A money market fund is similar to a bank savings account except that it is offered by a mutual fund company and therefore lacks FDIC coverage. Historically, this hasn’t been a problem, as retail money market funds have never lost shareholder principal for retail investors.
Because bank savings accounts historically have paid pretty low interest rates, you need to think a lot about keeping your spare cash in the bank. Instead, try keeping your extra savings in a money market fund, which is a type of mutual fund. Money market funds historically have offered a higher-yielding alternative to bank savings and bank money market deposit account and also come in tax-free versions, which is good for higher-tax-bracket investors
A type of account worth checking out at brokerage firms is generally known as an asset management account. Although the best deals on such accounts at some firms are available to higher-balance investors, the are no longer only for affluent investors as they were decades ago.
Some of these firms have fairly extensive branch office networks, and others don’t. But those that do, have been able to keep a competitive position because of their extensive customer and asset base and because they aren’t burdened by banking regulations and the costs.
The best of brokerage firm asset management accounts typically enable you to
• Invest in various investments, such as stocks, bonds, mutual funds, and exchange-traded funds, and hold those investments in a single account.
• Write checks against a money market balance that pays competitive yields.
• Use a VISA or MasterCard debit card for transactions.
Some of the larger brokerage firms or investment companies with substantial brokerage operations you may have read or heard about are Charles Schwab, ETrade, T.D. Ameritrade, and Vanguard.
Credit union accounts and benefits
Credit unions are similar to banks in the products and services that they offer, even though private banks tend to offer a grater variety. But, unlike banks, which are run as private businesses seeking profits, credit unions operate as nonprofit entities and are technically owned by their members (customers). Credit unions are unique creatures within the financial-services-firm univers and if they’re efficiently operated, the best ones offer their customers higher interest rates and lower fees on deposits, including checking and savings accounts and some loans at lower rates and fees.
The trick to getting access to a credit union is that by law, each individual credit union may offer its services only to a defined membership. Examples of the types of credit union memberships available may be Employer, College and University, Alumni or family ties to state a few. There can also be some overlap between these groups.
Credit unions have insurance coverage up to $250,000 per customer through the National Credit Union Administration (NCUA), similar to the FDIC protection that banks offer their customers. When checking out a bank, be sure that any credit union you may deposit money into has NCUA insurance coverage.
Nevertheless, it is importante not to think that credit unions necessarily or always offer better products and services than traditional banks, because this isn’t the case. The profit motive of private business spurs businesses to keep getting better and improving on what they do.