What Is The Difference Between Thrifts & Banks?
If watching Jimmy Stewart learn “It’s a Wonderful Life” is part of your holiday tradition, you probably remember the brave Bailey Bros. Building & Loan Association and how they Funded hundreds of single-family homes in historic Bedford Falls.
But while they’re not as common as they used to be, savings and credit unions, or “threshold institutions,” still play an important role in the financial lives of many Americans.
The biggest difference between thrift banks and traditional banks is that thrift banks are designed to serve American consumers rather than businesses. Bargain hunters are required by law to dedicate 65% of their loan portfolio to consumer loans, said Tanya Marsh, a law professor at Wake Forest University in Winston-Salem, North Carolina.
What is thrift
The typical consumer is unlikely to notice many distinct differences between thrift banks and community banks. Like community banks, thrifts are typically smaller, local institutions that don’t have the reach or resources of big national banks like Chase or Bank of America, Marsh said.
Thrifts offers customers many of the same deposit products as banks, such as B. checking accounts, savings accounts and certificates of deposit, as well as credit products such as home and car loans and credit cards. Just like a bank, all your deposits up to $250,000 are backed by the full confidence and creditworthiness of the U.S. Government through the FDIC. Safety.
From a consumer perspective, savings banks have one major advantage over banks: higher interest rates on customers’ savings.
“Because savers can borrow money from Federal Home Loan banks at low rates, this often results in higher interest rates on savers’ savings accounts compared to commercial banks,” Marsh said. “That’s traditionally been one of their strengths.”
What thrift doesn’t do
Brett Rabatin, CFA, an analyst and director at Piper Jaffray, a Minneapolis-based investment bank and wealth management firm, said secondhand firms often don’t offer the kind of money you’ll find at many banks. Kind of a one-stop shop for financial services.
“If you go to a savings and loan or a thrift store, the product range is much simpler compared to a commercial bank,” Rabatin said.
This means you’re likely to find fewer account types and fewer wealth management, foreign exchange and insurance products and services than at traditional banks.
Commercial Banks and Savings Institutions
Like most companies, commercial banks operate for profit. They do not have specific mandates regarding asset classes. Shareholders own these organizations and, like most companies, the goal is to increase profits. The extent of powers conferred on commercial banks is largely determined by state and federal laws, both of which issue the bank’s charter.
The powers vested in the bank by corporate statutes and state and federal laws determine the scope of the bank’s activities. Commercial banks receive deposit insurance from the Federal Deposit Insurance Corporation (FDIC) and are subject to the Federal Reserve System. Plus, commercial banks gain in convenience what commercial banks lose in member savings; with thousands of offices across the country, you can easily find a local office if you have an emergency while traveling.
In contrast, thrifts specialize in mortgage and real estate loans. The first mission is thrift for members, not profit. Like commercial banks, thrift institutions can be chartered by the Office of the Comptroller of the Currency (OCC) or by a state. The FDIC also insures them. Depositors tend to keep their loan portfolios rather than securitize them, so members with atypical profiles that do not meet the agency’s mortgage lending standards may be more likely to obtain loans through local savings institutions than through national commercial banks.