Until the mid-1970's, all banks and credit unions were heavily regulated by the Federal government. They were not permitted to offer products other than pure banking services.
Life and auto insurance, investments, travel programs, or any other typical commercial services were prohibited. While there was strong inter-bank competition, Federal and state regulations ensured that all but the worst-managed institutions would enjoy sufficient income and profit to remain relatively strong.
How deregulation created confusing banking myths and fictions
The widespread deregulation of banking institutions allowed much more "creativity" in pricing, products, and advertising. Until this major change, banks had to market their services in a straightforward and clear manner. While this requirement technically still exists, the addition of many non-banking products, including investments, and fees for many transactions has generated myths that are often perceived as fact.
Just as many consumer products are advertised as "new and improved" (how can a product be both?), banking services marketing often indicates that one institution offers different, better products than another. While this may – or may not – be sometimes true, consumers can be easily confused, often believing the fiction more than the fact.
Banking fiction
Myth: Offshore banking is only for the wealthy or people trying to "hide" money.
This is a popularly believed myth and often misunderstood. The fact: Offshore banks are open to all, even those of modest means, and one primary purpose is to legally avoid taxes. The banks of Switzerland are the only real option, with numbered savings account structures, that one can, to a degree, "hide" funds. Most legitimate offshore banks operate much the way U.S. institutions do.
Myth: Using European or offshore banks is very risky as they are often mismanaged.
The fact: Most banking institutions in Europe and those based offshore are managed just as professionally as are U.S. banks. However, just as you should never take the stability of any U.S. bank for granted, you should learn about the strength or frailty of foreign banks, too.
Banking institution data is public information and can be accessed by anyone. Use this ability if you wish to open a savings account, money market account, or a certificate of deposit in any U.S. or foreign bank.
Myth: Credit unions don't offer most of the services of a bank.
During the 1940's, 50's, and 60's, this was often a fact, but now it is a fiction. The fact: Most credit unions offer the majority of the services of a bank, often with better pricing.
Unlike a bank, credit unions do not have net profit as their prime motivator. Since each customer/member is an owner, high-level service is the number one goal. Your credit union savings account, money market account, or certificate of deposit will often earn higher interest rates than your neighborhood bank. At the same time, your cost of borrowing for personal, auto, and home equity loans may be less than many banks.
Myth: Baby boomers and seniors are neglected by banks and only cost institutions money.
Prior to the mid-1990's, it appeared that many banks and their older customers believed this to be true. The fact: As most banks discovered, after they honestly examined this group of customers, not only were they not "cost centers," baby boomers were often the most profitable area of institutions.
They tend to keep larger balances in a savings account, money market account, or certificate of deposit, they use many bank services, including ATMs and Internet banking, and are often easier to please, since they understand banking and seldom ask for "something for nothing." This consumer group is neglected no longer.
Separate banking fact and fiction
While the claim of being "new and improved" seldom describes the facts of the banking industry, many institutions are trying to bring back service as their primary feature. Most banks, through their advertising, attempt to influence your belief that this is true – and many banks are making a strong effort to deliver on this promise. Consumers can feel secure that if bank marketing appears to be "too good to be true," many claims probably aren't true.
However, separating fact from fiction always helps you make better banking decisions. The deregulated environment tends to create myths, whether or not banks want to perpetrate the fiction. Economic crisis periods seem to generate even more myths that can shake consumers' faith in banks. Yet, during these difficult times, most banks remain well managed and usually are just as safe and secure as in wonderful economic periods.
Banking fact or fiction series: Part I | Part II | Part III | Part IV
