About this video
In this comic sketch, a narrator takes Jane Q. American, who keeps her money in an uninsured app, on a tour of three safer places to store money: a big commercial bank, a credit union (or local bank), and an online bank. Each has trade-offs in fees, interest rates, convenience and services, but all of them carry federal deposit insurance up to $250,000, unlike her money app.
You'll be able to
- explain what FDIC or NCUA deposit insurance does and why it matters.
- compare commercial banks, credit unions and online banks on fees, interest, convenience and services.
- explain why an uninsured money app is riskier than an insured bank.
Key words
- FDIC
- The Federal Deposit Insurance Corporation, which insures deposits at banks up to $250,000 per account if the bank fails.
- NCUA
- The agency that gives credit union deposits the same kind of federal insurance the FDIC gives banks.
- Commercial bank
- A for-profit bank offering many services, like credit cards, car and home loans, and lots of ATMs.
- Credit union
- A nonprofit, member-owned co-op that offers banking with better rates and lower fees but fewer ATMs.
- Online bank
- An insured bank with no physical branches, so its costs and fees can be lower.
- Deposit insurance
- A government guarantee that you get your money back, up to a limit, if your bank fails.
Transcript
- [Narrator] Khan Academy Financial Literacy Theater presents "The Vault." It is a truth universally acknowledged that a dollar burns a hole in your pocket. It yearns to be spent, whether on rent or a bucket hat or a kiddie pool full of shrimp, you know, the essentials, but once your basic everyday needs are taken care of, what do you do with the rest?
No, don't store it in your mattress. No, don't eat it. Money's not for eating. Instead, you should consider a bank. You there? Miss?
- [Jane] You talking to me? - [Narrator] Yes, you, Jane Q. American, where do you keep your money?
- [Jane] In my money app, obviously. Doesn't everyone?
- [Narrator] No. You might as well be storing it in a shoebox. Jane, come with me on a journey of discovery.
- [Jane] I was eating lunch. - [Narrator] Get a to-go box. Once we eliminate the shoebox, you've got three options for storing your money: a commercial bank; a credit union; and an online bank.
- [Jane] What about my app? - [Narrator] Does it have federal banking insurance?
- [Jane] A what? I don't know what that is.
- [Narrator] The FDIC, the Federal Deposit Insurance Corporation, is a government-owned business that insures consumer deposits. If a bank goes belly up and loses all your money, the government will insure up to a quarter million bucks per account so you don't lose your shirt when the bank acted irresponsibly or illegally.
Your app, what do you use? - [Jane] BuxWave. It's new.
- [Narrator] Yeah, they don't have deposit insurance. Don't give your money to a startup that doesn't have deposit insurance. If they fail, your money isn't insured. It's just gone.
- [Jane] Okay, so let's say I wanna put my money in a commercial bank, what does that mean?
- [Narrator] Let's find out, shall we? - [Banker] Howdy, howdy. Welcome to JP CitiFargo Bankital One and Trust of America. Would you like to learn more about our retail banking services?
- [Jane] Oh, so this is like a bank bank?
- [Banker] Yep, granite counters, big vault, pen on a chain. - Big bowl of lollipops?
- [Banker] That depends. Are you five years old?
- [Jane] Wow. I'm out. - [Narrator] Give the lady a fair hearing, Jane. There are advantages to using a commercial bank.
- [Banker] We issue credit cards. We can give you a car or home loan. You can start a retirement account with us, and we're everywhere. You can probably find one of our ATMs in most cities and towns across the country.
- [Jane] Okay. Narrator, tell me the drawbacks.
- [Narrator] Mega banks charge you to have an account. They offer lower interest on savings accounts than other kinds of banks do, and they're out to make money. That's the whole point. They're a for-profit business. And when it comes down to it, their goal is maximizing their own profits, not yours.
- [Jane] I'll be taking those lollipops. Thank you.
- [Narrator] Next, credit unions and local banks.
- [Jane] So not all commercial banks are enormous, right?
- [Narrator] Just so. Smaller, regional banks are still for-profit entities, but they're not huge, faceless mega corporations. Regional or local banks lend money right back into the community, so your savings go to work as someone else's business or home loan.
- [Jane] That's nice. - [Narrator] But they might not offer quite as many services as a big bank does.
- [Jane] Okay, and what's this place? Pipefitters' Credit Union, I'm not in the trades.
- [Narrator] Sometimes, that's what it takes to join a credit union, to have someone in your family that's eligible, but it depends on the CU. Some just need you to live nearby.
- [Jane] Let's go in. - [Teller] Howdy, howdy. Welcome to the Pipefitters Credit Union. How can we assist you in your retail banking and/or residential, commercial, or industrial pipe-fitting needs?
- [Jane] I can just open an account with you?
- Do you live in town? - I do. - [Teller] Then, sure.
- [Jane] And y'all do all the same stuff as the big banks? You got federal deposit insurance from the FDIC?
- [Teller] We have deposit insurance from the NCUA, but it's kind of the same difference. The federal government insures your money with us up to $250,000, just like the FDIC does with a commercial bank. But we're a nonprofit. All credit unions are. Think of us as a co-op.
You put money in the credit union and you've got a stake in our success.
- [Jane] But I have to be a pipe fitter? - [Teller] We should really change that name. No, you super don't need to be a pipe fitter to join the credit union. That's just how our credit union started.
- [Jane] Okay. Sell me on your benes. - [Teller] We offer more competitive interest rate than big banks do. You get a bigger return on your savings account and you pay a smaller amount of interest on a loan or a credit card. Our fees are lower too.
- [Jane] But there's gotta be some drawbacks.
- [Teller] Well, yeah, we have like two ATMs in the whole city, and one of them is right over there. You can use other ATMs for a fee, and some credit unions refund that fee automatically.
- [Jane] Last question. Do you have lollipops?
- [Teller] Yeah, we have lemon, orange, and red.
- [Jane] Don't mind if I do. Okay, so what's the next bank?
- [Narrator] You're already there, Jane Q. American.
- [Jane] You mean outside? - [Narrator] No.
- [Jane] You mean the real bank was inside me all along?
- [Narrator] No, Jane, it's on your phone.
- [Jane] Oh, an online bank? How is that any different from BuxWave?
- [Narrator] An online bank is a bank like any other. It just doesn't have a brick-and-mortar location you can visit. BuxWave can't guarantee your deposits. It's uninsured. It's not a bank, but actual online banks are FDIC insured.
- [Jane] So an online bank doesn't have physical branches. I can't walk in and be like, "Put these precious jewels in the vault, madam."
- [Narrator] No, but that means it's cheaper to bank with them. Think of how large most banks are. That space in the center of town isn't free. They have to pay for that lease somehow, but an online bank doesn't have that constraint.
- [Jane] No tellers, no parking lot, no pneumatic drive-through deposit tube, no lollipops.
- [Narrator] Not a one. - [Jane] But I can do all the other stuff, set up savings accounts for retirement, get loans, and a credit card?
- [Narrator] Let's see. Internet banks put a lot of stock in customer service because they don't have real estate. Give 'em a call.
- [Jane] Hello? Is this Bank.Biz? - [Caller] Hey, it sure is.
- [Jane] Do y'all have all that stuff I mentioned?
- [Caller] We do, in fact- - [Jane] Cool. Thanks. (phone beeping)
- [Narrator] So Jane, have you made your decision?
- [Jane] It's so hard to choose. Part of me is attracted to the everywhereness of a real bank, branches in every city, support all over the world, all kinds of services, but their fees are higher and they'll do anything to increase their profits. But then again, I love the coziness of a community bank or a credit union.
Maybe it's less convenient, but the rates are better, and I won't just be a number on a spreadsheet to the people who work there. I'll be a person, a neighbor. But what if I want to be a number on a spreadsheet? What if I want to bank in my pajamas and not go in the branch office?
What if I just wanna be a bed slug, but also a bank slug? Maybe an online bank is the bank for me,
- [Narrator] But whatever you do, where aren't you going to keep your money, Jane Q. American?
- [Jane] I'm not gonna keep it in my money app anymore.
- [Narrator] That's right. There are a variety of smart choices out there for you.
- [Jane] And with the right kind of financial maneuvering, I can buy my own lollipops.
- [Narrator] This is starting to tip into obsession territory. What, are lollipops a food group for you?
- [Jane] Oh, excuse me for trying to enjoy life a little.
Video © Khan Academy, used under CC BY-NC-SA. Watch on Khan Academy. Puzzicle is not affiliated with Khan Academy.