This blog is part of the blog series “How to start your personal finances from 0”
1- The basics
If you want to learn more about our learning paths, go here.
Best banks for Latinos
Are you looking for a bank? If so, you are not alone.
Just over half of all Latinos, 51.1% to be exact, do not currently have a bank account. An account can be a great way to secure your finances and feel more confident when completing transactions. In this article we will explore what to consider when looking for a bank and what we have determined to be some of the best banks for Latinos . Before we get too far, let’s briefly cover how banks and credit unions make money. By understanding the basics, you will be more prepared to choose the right banking solution for you and your family.
How Banks Make Money
In simple terms, a bank makes money by loaning out money and charging interest. This could be for a home, auto, student or personal loan. When you get a loan from the bank, you are promising to pay the bank back more than what you initially borrowed. The amount you pay back above and beyond the borrowed amount is where a bank’s revenue comes from.
Where do banks get all of this money to loan out? From you, the customer.
While you may imagine the bank holding your money in a giant vault, they are actually lending it out to other customers who are seeking loans. In order to ensure that your bank has enough cash on hand to meet the needs of customers, most banks are required to keep between 3% and 10% of their total transaction amount available at any given time. In exchange for loaning your money out to other customers, most banks will pay you a very small amount of interest on your checking or savings account balance. Currently, this rate of interest is historically low.
By paying you, the customer, less interest than the bank receives on these loans the bank is able to make a profit in the process. The amount that a bank receives during this process is called the net interest margin. Since 1993, this net interest margin received by banks in the United States has been on the decline. This is largely the result of an interest rate environment which has been decreasing during the last twenty years.
While this net interest margin is the primary way banks make money, there are also some “side hustles” that banks engage in. This includes charging customers fees for using a checking account or debit card, selling financial services within their branch locations, or investing extra capital in corporate or government debt.
Banks Vs Credit Unions
Before we explore this too far, let’s define the difference between a bank and a credit union.
A credit union is a not-for-profit, member-owned, bank. When you join a credit union, you are actually becoming an owner of the institution. Credit unions generally focus on a specific region, like the American Southwest or a specific state. Their smaller size means that some credit unions may not have services which larger banks can offer. With this said, credit unions also generally pay higher interest on savings accounts and will issue loans at lower rates. This is made possible by the bank’s not-for-profit mindset.
A bank on the other hand is a for-profit corporate entity which is managed by a board of directors or leadership team. Many banks have branch offices in many states, compared to the more local approach taken by credit unions. As banks are for-profit companies, they many times pay lower interest rates on deposits and will charge higher interest rates on home, auto or student loans. Making up for a more expensive cost structure is that fact that many banks offer technology (like mobile banking) or niche financial products (investment accounts) which credit unions do not offer.
When it comes to choosing between a bank or a credit union it is really a personal preference. If you are looking for the lowest rates and to partner with a community focused group, choose a credit union. If you have unique financial needs, are looking for the best technology and want nationwide banking… a traditional bank may be the best fit.
What Factors to Consider When Choosing a Bank or Credit Union
If you are not comfortable with bank jargon and the ins and outs of banking, it can feel intimidating to choose a bank. Consider these five basic items as you begin your search.
1. Security of your funds
While the vast majority of banks are rock solid institutions, it’s important to keep in mind that not all banks created equal.
The good news is, there is a government agency which is tasked with ensuring that banks are stable and in a position to keep customer’s deposits safe. This agency, the Federal Deposit Insurance Corporation or FDIC, was formed in 1933 following the great depression. This government agency ensures all customer deposits up to $250,000 per depositor and per bank. This means that if you do work with a bank which goes under, the FDIC will compensate you for your loss.
While this is a very unlikely scenario, the reality is that every year there are banks which go out of business and cannot pay back their customers. Click here to see the current “failed bank list” from the FDIC. Before depositing any money with a bank, use the FDIC’s bank find tool to make sure the bank is covered.
2. Location, location, location
While not nearly as important as your fund security, location is a big consideration when choosing a bank. If you have a bank down the street, or one which offers multiple ATM locations in your town, this is a good starting point as your begin your bank search. It can be frustrating to have to make your way across town every time you need to make a deposit or speak with a teller. Start local and move outward in your bank search.
3. Fees, account minimums and limitations
As we mentioned previously, loaning out money is not the only way banks make money. In some cases, banks can generate substantial revenue by charging customers for insufficient funds, check deposits, bank transfers or for using bill pay services. These costs can add up significantly over the course of the year. It’s always wise to speak with several banks, get their fee information, and do some comparison shopping. Word of mouth is a powerful tool when finding a bank, so don’t hesitate to ask friends or family if they have a bank they can recommend.
4. Mobile or Web Banking Services
Currently, customers are visiting their bank less and less.The reason? Most banks are now offering web-based banking, bill pay and even mobile check deposit. Many times, these services are provided at no cost as a way to incentive new customers to join the bank. Just as you would look at the fees a bank charges, develop a firm understanding of what kind of technological support the bank can provide.
5. What the Bank Specializes In
Just as all banks are not created equal, not all banks specialize in offering the same types of service. There are banks designed for the ultra wealthy, banks designed for farmers, and banks designed for everyday people looking for a simple and inexpensive checking account.
There are also banks that specialize in servicing those in the Latino community. These banks may provide bilingual customer support or English Second Language financial education courses. If you are looking to increase your financial IQ, these types of services and programs can be a fantastic starting point.
Latino-Focused Banks and Credit Unions
This credit union, servicing Latinos in North Carolina, is a leader in providing Latino-focused banking and financial services. It started in 2000 and has a leadership team of individuals from 19 countries. This truly diverse group provides educational videos in Spanish, e-learning opportunities, and in-branch workshops. For Latino’s based in North Carolina, or the East Coast in general, this is a very good bank to consider.
For Latinos in California, the Comunidad Latina Federal Credit Union in Santa Ana is a good option. Like the Latino Community Credit Union, this credit union specializes in providing financial services to Latino customers. Their rate and fee information is offered in Spanish and English, and the firm provides bilingual customer support at their branch offices.
Re-branded as the Self-Help Federal Credit Union, this is another California-based institution which is uniquely suited to service Latinos. With 17 locations in California and two in Florida, this is a nationwide credit union which can provide financial services many smaller banks may miss.
This credit union, based in the Bronx, New York, offers one of the best remittance programs in the nation. Remittance is bank jargon for when a foreign worker, living and working within the United States, sends money back to family in their home country. This credit union employs ten people in their remittance department and has taken special interest in providing this service to members. If you are located on the East Coast and sending money to Mexico, Central America or South America is important to you, consider Bethex Federal Credit Union.
If you live elsewhere, ask a potential bank or credit union what kind of remittance services they offer before opening an account.
National Banks to Consider
While these three banks are at the cutting edge of providing Latino-specific services, the reality is that many readers may not have a branch location in their city. For this reason, it is wise to at least consider partnering with a national bank like Bank of America, Capital One or U.S. Bancorp. Below are two large national banks, which we have found to provide above average Latino-focused services.
As the 14th largest bank in the United States, BB&T has taken a unique understanding to the needs of Latinos and other under-banked customers. The firm has established a multicultural markets division with a specific goal of attracting more Latino millennials (born between 1982 and 2004) to their firm. A large part of this outreach is education, as 31% of Latino millennials say educational services are an important offering from a bank. Just 22% of older Latinos view this education as a core component of a bank’s offering. In 2012, BB&T was recognized by the US Hispanic Chamber of Commerce as being a leader in diversity outreach.
The bank offers a Spanish language website and provides Spanish-language customer service at their vecino financial centers. These locations are in 12 states and Washington DC. If you are Latino millennial , BB&T Bank may be a good option.
Originally formed in Canada as Toronto-Dominion Bank, it has recently made major inroads into the U.S. banking market. In 2004 the bank rebranded themselves as TD Banknorth N.A. and reincorporated in Delaware. TD Bank is now the 12th largest in the United States with $276 billion in total assets.
This bank has stated that “Hispanics are an increasingly influential economic force, presenting banks with an opportunity to gain business, but also grow and support their communities.” This type of language shows that TD Bank takes the needs, and influence, of Latinos seriously and has made moves to understand the needs of the Latino community. The firm provides a Spanish language website and has bilingual employees at a number of core locations.
If bilingual banking is needed, be certain that your local branch has a bilingual staff member on site before opening an account.
The Bottom Line
There are a lot of banks out there to choose from. Every one of these banks is interested in adding customers and expanding their regional footprint. Don’t underestimate the power you have a consumer. Do some comparison shopping, ask friends if they have a recommendation, and spend time getting to know any bank before opening an account.