Alternative Banking: 6 Options to Consider

If you’re growing weary of your big bank, you’re not alone—customer satisfaction with big banks has been steadily decreasing since mid-2021, especially for middle-class people under 40. For this reason, many consider switching banks and finding better alternatives.

Money management tasks are inevitable—monitoring your checking and savings accounts, completing transactions, investing, and paying bills are all part and parcel of maintaining your financial health. But, unsatisfying big banks aren’t the only financial service providers. 

In this guide, we’ll explore why you might want to leave your savings or commercial bank and break down the following modern banking alternatives. 

  1. Credit unions
  2. Digital-only banks (neobanks)
  3. Community banks
  4. Certificates of deposits (CDs)
  5. Peer-to-peer lending
  6. Green banking/sustainable banking

These alternative banking options range from new innovations to long-standing systems, but they can all help you ditch your big bank for good. 

Benefits of Seeking Alternative Banking Options

There are a variety of reasons why people leave big banks—in a world of growing financial technologies (fintech), more ethical money management options, and increased transparency, consumers can leave their big banks to reap the following benefits:

  • Improved institutional ethics – Your big bank may be contributing to a cause or funding a project you don’t support. For example, Wells Fargo lent $120 million to the developers of the Dakota Access Pipeline in 2017, and Chase invested $69 billion into oil extraction projects in 2019., But, sustainable financial services providers invest customers’ money in environmentally responsible initiatives.
  • Reduced fees – Small banks and credit unions typically charge fewer or lower fees than big banks. For some individuals, fees for overdrafts, funds transfers, and account operation can pose a significant detriment to their financial health. 
  • Improved convenience – Newer, more innovative financial service providers may offer customers more advanced fintech options than their big bank counterparts, increasing the convenience of online and digital money management. 
  • Personalized customer service – Staffing challenges at big banks have led to significant dissatisfaction with customer service among consumers. Some modern banking alternatives best big banks’ customer service, providing more personalized support.

Consumers have at least one alternative to keeping money in a bank—and, as more fintech and money management alternatives hit the market, individuals and businesses have even more opportunities to pursue higher-quality alternative financial services. 

6 Alternative Banking Solutions

If the list above motivated your search for an alternative to using banks, consider one of the six options below. While not all of these platforms are right for everyone, you might just discover the solution to your banking woes. 

#1 Credit Unions

Credit unions are financial institutions that do not operate for profit—they’re the antithesis of big banking. Instead of prioritizing profit, credit unions strive to:

  • Provide high-quality, low-cost financial services to a specific community
  • Support local and regional economies through investment
  • Offer lower-than-average interest rates for home and auto loans
  • Invest in community projects and initiatives

They can offer lower-cost services, reduced fees, and lower interest rates for a few reasons:

  • Reduced overhead – Credit unions are small entities with fewer branches than big banks, so their operating costs are lower.
  • Non-profit focus – Credit unions don’t have to answer to stockholders, so they don’t have to charge high fees and interest to make more than they need to operate.
  • Reduced risk – Credit unions lend money to community members within a specific service area. They have more context during the loan approval process, giving them a better picture of a candidate’s creditworthiness.

But, not everyone is eligible for a credit union. Credit unions typically serve:

  • A specific geographic area
  • A singular industry
  • Employees working for the state, county, or other government entity

#2 Digital-Only Banks

Digital-only banks—sometimes called “neobanks”—operate 100% online. Digital-only banks carry a bevy of benefits:

  • Reduced fees
  • Accessible account minimums
  • Increased interest rate on savings accounts
  • Improved customer service

Like credit unions, digital-only banks have fewer overhead costs—especially since they don’t operate any brick and mortar locations or ATMs. Overhead savings allow neobanks to keep fees to a minimum and reward customers with higher savings account returns. 

Plus, they’re 100% digital—if you live a relatively cashless lifestyle, you can say goodbye to in-person financial tasks. 

However, digital-only banks do have one significant drawback—cash deposits. While customers can deposit checks using a mobile app, cash deposits require at least some in-person interactions. Digital-only banking customers manage their cash deposits in some of the following ways:

  • Cashier’s checks – Customers with cash can use it to purchase a cashier’s check from a bank or grocery store, which they can deposit via their mobile app or by mail.
  • Mail – Some digital-only banks accept cash deposits through the mail, but sending cash in the mail can be risky.
  • Wire transfers – Customers can order a wire transfer to their bank account from an in-person wire transfer provider. 
  • Account transfer from a second bank – Some neobank customers opt to deposit their cash into a separate account and electronically transfer it to their online bank account afterward.

#3 Community Banks

Community banks are similar to credit unions—they serve specific geographic areas, invest in local communities, and provide personalized customer service. But, unlike credit unions, they operate for profit. 

Despite operating as a for-profit business, community banks may still be an advantageous choice for two significant reasons:

  1. Local ownership – Community banks are usually owned, operated, and overseen by local community members. So, the people in charge have a stake in the community they serve, motivating them to treat customers fairly and invest in local projects.
  2. Customer power – When you bank with a giant financial institution, you don’t have ready access to major decision-makers if you need to voice your concerns. But, at a small community bank, you’re more likely to receive an audience with the chief executives, the board of directors, or any other higher-ups with whom you wish to speak. You have more influence over bank policies, investments, and fee structures at a community bank.

If a credit union isn’t available in your area, or if you’re not eligible to bank with the nearest credit union, a community bank could also be an excellent option for your personal finances or your business. 

#4 Certificates of Deposit (CDs)

If you’re looking for alternative investments to traditional savings accounts and you’re prioritizing optimal returns, look no further than the Certificate of Deposit (CD). 

CDs allow you to set aside a significant sum of savings for a pre-selected term, locking in the interest rates on the day you complete the deposit. So, even if bank or credit union savings account interest rates decrease during the term of your CD, you’re still guaranteed to receive interest at the rate you were promised when you cash it out.

Before applying for a CD, you should explore a few key considerations:

  • Where to apply – You can apply for a CD at various financial institutions, including traditional banks, credit unions, community banks, and digital-only banks. You should search for the highest interest rate available.
  • The term – Financial institutions issue most CDs for five- or three-year terms. But, you can sometimes secure longer terms. Remember that you’ll have to pay penalties if you decide to cash out the CD before its maturity date.
  • Liquidity – While they can be cashed out at any time, CDs are generally not considered liquid assets. Most financial institutions advise establishing a strong and well-funded traditional savings account in addition to your CD in case you experience an unforeseen financial hardship.

#5 Peer-to-Peer Lending

Most people apply for loans through a financial institution. But, peer-to-peer lending has had a presence in the loans market for nearly a decade, and this loan method typically takes one of two forms:

  1. A legally-binding lending agreement between:
    • Two individuals
    • One individual and one business
    • Two businesses
  2. Less legally robust agreements between an individual and many other individual lenders

Peer-to-peer lending can benefit both the lender and the borrower:

  • Lenders can often beat the market by funding a start-up or a small business and reap short-term rewards if the business succeeds. 
  • Borrowers with less-than-perfect credit histories can pitch their needs and creditworthiness with more nuance than they can with typical underwriting, making it easier to find capital despite sub-optimal credit. 

#6 Green Banking

For consumers who care about the planet, green banking alternative options are one of the most innovative and responsible money management options available today. Environmentally friendly banks or financial institutions, like Aspiration, typically offer a few climate-positive financial tools for consumers:

  • Ethical checking and savings accounts – While traditional banks use account holders’ deposited funds to invest in worldwide projects with various ethical profiles, green banks only invest customers’ cash in environmentally responsible projects.
  • Built-in carbon offsetting – Carbon offsetting allows consumers to neutralize their inevitable emissions by investing in tangible climate action. Aspiration, for instance, gives customers the option to round up their spare change and plant one tree for every purchase made with their eco friendly debit card
  • Reduced fees and alternative pay options – Since many green banks operate solely online, they benefit from reduced overhead. At Aspiration, customers can choose to Pay What’s Fair with the debit card, even if they choose to pay $0. 

From offerings like a green credit card to eco-friendly investment products, green banks are revolutionizing financial services to benefit the planet and consumers. 

Manage Your Money and Take Climate Action with Aspiration

Whether you’re frustrated with your bank’s fees, mediocre customer service, or unethical investments, alternative banking could give your money management plan a facelift. From digital-only neobanks to credit unions, banking alternative financial services continue to grow and show promise.

If you’re looking for a non-bank financial institution that shares your goals for climate change action, look no further than Aspiration—we lend and invest your money in eco-friendly projects that align with your environmentalist values. 

Sources: 

American Banker. Customer Satisfaction Falls at Big Banks Amid Staffing Challenges. https://www.americanbanker.com/news/customer-satisfaction-falls-at-big-banks-amid-staffing-challenges 

Wells Fargo. Wells Fargo’s Involvement in Funding the Dakota Access Pipeline. https://stories.wf.com/wells-fargos-involvement-funding-dakota-access-pipeline/ 

Rainforest Action Network. Follow the Money Behind Deforestation. https://www.ran.org/campaign/follow-the-money-behind-deforestation/ 

Money Magazine. Millennials Are Rejecting Big Banks in Favor of Local Banks. https://money.com/millennials-leaving-big-banks/ 

Forbes. Best Online Banks of May 2022. https://www.forbes.com/advisor/banking/best-online-banks/ 

NerdWallet. How Do CDs Work? Learn How to Save Smarter. https://www.nerdwallet.com/article/banking/how-do-cds-work 

US News. Best Peer-to-Peer Lending Websites for Investors. https://money.usnews.com/investing/articles/best-peer-to-peer-lending-websites-for-investors 

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