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BANKING ALTERNATIVES:NEW COMPETITION FOR BANKS

Published by sam - 22/09/07 - 10:09:52 am

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In the same area of personal finance, the substantial changes that took place in the 1970’s in the structure and functions of financial institutions prompted a proliferation of alternatives for consumers. Perhaps nowhere have the changes been felt more than in banking. Early in the decade, federal laws limited banks in regard to the maximum interest they could pay and the services they could provide. As these restrictions gradually were lifted, banks gained more freedom to compete for depositors accounts, but—even more important—so did a number of competing institutions that had previously been barred from providing consumer financial services.

As a consequence, you are no longer captive to the low interest rates and high service charges of traditional banks and can take you savings accounts elsewhere; to credit union, money market funds, brokerage houses, and even your local sears, roebuck store. The banks new nonblank competitors are also vying successfully for a share of the loan and credit card business, and many provide their customers with checking accounts.

No one institution—bank or nonblank—is ideal for everyone. Each has its advantage and disadvantages. Your choice of one or more institutions should be governed by your personal needs. For most consumers the following considerations are relevant:

• Proximity and convenience. Does the Institution have to be close to your home or business, or can most of your transactions be done by mail or by use of automated teller machines?
• Interest rates. Are you primarily concerned with earning a high rate on your savings or with paying a low rate on your loans? The same institution may not satisfy both these needs.
• Credit Which forms of credit, credit card, auto loan, home mortgage, etc—are you likely need?
• Other services Unless you need a safe deposit box, signature guarantees, a financial reference, travelers checks, direct deposit of payroll an pension checks, bill payment services, electronic fund transfers, notary service, and similar amenities, you may be better off at a no frills institution that provides none of these services and translates the resulting economies into higher interest rates.

Of course there is no reason why you should confine your financial activities to single institutions—bank or non bank. You may want to use several types of institutions in order to take advantage of the special features each.

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