Advantages & Disadvantages of Banks: A Brief Overview

Advantages & Disadvantages of Banks: A Brief Overview
Point Editorial

All realms of finance come with benefits and drawbacks. Read on to learn more about the purpose of banks, the types that exist, and their advantages and disadvantages.

Understanding banks

A bank is a financial institution licensed to hand out loans, receive direct deposits from consumers, help you manage your investments, and purchase money. They’re also responsible for approving applications for things like credit cards, insurance plans, or loans.

Traditional banking through in-person visits is much less popular now that online banking and mobile apps offer easy money management.

Virtual banking has skyrocketed thanks to the ease of automatically paying your bills online, submitting applications for new accounts, viewing your transactions, and transferring money between bank accounts. 

The services provided by banks are unavoidable. 

A bank poses as an intermediary between people and the financial world to keep your money safe and to allow you to borrow sums if needed. 

Banks generate the vast majority of profit through interest rates and fees. 

Advantages of a bank

The overall advantages of a bank include: 

One: Safely storing the public's wealth. 

Instead of walking around with wads of cash or hiding it under the floorboards, banks provide you with a protected place to store your money without worrying about theft. 

Two: The widespread availability of affordable loans. 

The qualifications for loans are relatively standard across most banks. Modern establishments have broken this cycle by increasing accessibility to loans and offering more reasonable requirements. 

Three: Propelling the economy forward. 

Banks often act as lenders for large amounts of capital to various economic sectors like agriculture and small businesses, which, in turn, raises employment rates and spending power. 

The government expects banks to support particular facets of society. Rural or underdeveloped communities and industries are two such areas. Investing and approving loans in these areas increases development and modernization while building local branches to improve access to banking services. 

Disadvantages of banks

It’s important to recognize that banks, even local banks, aren’t perfect and have downsides as well. 

One: The chances of going bankrupt. 

Banks can suffer if customers spend less or decide to withdraw their money out of fear that the bank will go bankrupt. This can occur in a crashing economy, as seen during the Great Depression. 

Two: The risk of fraud and robberies. 

Online banking is extremely convenient. With the click of a button, you can withdraw or transfer money, set up a new checking account or savings account, or pay your monthly balance off. 

Unfortunately, this also means that it’s far easier for another party to access your information. Cybercrime and identity theft have been increasing over the years. Banks have increased their safety precautions and, therefore, they also charge customers more money. 

Types of banks

Due to the constantly booming business within the financial sector, many different types of banks exist. Each caters to the varying needs and demands of different demographics.

Retail banks 

These banks are institutions that offer services to the general public. A retail bank offers checking accounts, savings and retirement accounts, and sells various loans and credit cards. 

Commercial banks

These banks specifically cater to corporate clients like large and small business owners, non-profit organizations, and the government. Their services and products are more specialized, and often encompass real estate, equipment loans, and financing loans.

Community development banks

Unlike retail and commercial banks, community banks are private, and their goal is social responsibility. Marginalized communities are their main customer base. 

Investment banks

As evident by the name, investment banks focus on investing money — either a customer’s or the bank’s — instead of loaning it. 

Online banks

Sometimes referred to as neobanks or virtual banks, online banks have no physical establishments. They thrive on straightforward platforms accessible through the internet, so you don’t have to worry about commuting to the bank. Most online banks partner with a traditional bank to help manage their finances. 

Many traditional banks are beginning to offer mobile banking services online, too. 

Credit unions

Credit unions are institutions owned and operated by exclusive members. You can receive loans and make deposits with a credit union. They may offer lower interest rates and less fees compared to a traditionally recognized bank. 

Savings and loan associations

The sole focus of these institutions, sometimes called “thrifts,” is to help people become homeowners. But the presence of thrifts has been declining since the 1980s because they can only offer limited loan and account types due to federal regulations. 

Choosing the right bank for you

Overall, banking establishments are quite similar in the services and advice that they provide. When it comes to selecting the bank that’s right for you, it depends on your personal finances and the type of account you’re looking for. Many offer different benefits or rewards programs. 

Whatever you decide, be sure that your account is backed by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). These bodies ensure that banking customers have deposit insurance, covering up to $25,000 in deposits if the bank or credit union goes out of business.

Point's contributions

Despite all the complexities of banks, they help the public handle and protect their wealth. 

Allow us to introduce PointCard.  

Point is engineered as a transparent, easy-to-use alternative payment card. It allows cardholders to exercise fiscal independence and spend their own money as they see fit. All users receive exclusive benefits, including unlimited cash-back and bonus cash-back on subscriptions, food delivery, rideshare services, and coffee shop purchases. Whether you’re adhering to a budget or looking to earn a little extra on the side, Point’s extensive rewards program is here to help. 

In addition, PointCard also comes with multiple safety measures to help you save and protect your wealth. Car rental and phone insurance, travel cancellation insurance, fraud protection with zero liability, two free ATM withdrawals a month, and no interest rates are just some of these features. 

Regardless of whether you’re trying to maintain or rebuild your credit score, you’ll be able to have peace of mind knowing that PointCard has your back every step of the way.

You work hard for your money, and Point works hard for you in return.

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