How Do Credit Unions and Banks Differ?

How Do Credit Unions and Banks Differ?

It's Not Just About Customer Service Banks and credit unions can be found on nearly every block, allowing customers to meet their banking needs. You may be unsure which is best for you because of the many similarities between banks and credit unions. Both types of institutions allow you to deposit or borrow money for a variety of purposes safely, but they differ in terms of how you want to manage your money.

How Do Credit Unions and Banks Differ?

Banks Credit Unions
Shareholders and investors own the company. Customers who are members own the company.
Serve the general public. Only members are served.
Provide top-of-the-line products and apps. It's possible that not all types of loans are available.
Pay a lower interest rate on deposits. Increase the interest rate on deposits.
Loans should have higher interest rates. Charge lower interest rates on loans.

Ownership of a bank vs. a credit union

The primary distinction between banks and credit unions is who owns them. Credit unions are non-profit financial institutions. Customers, referred to as "members," own and control them. Credit unions' primary goal is to improve their members' financial well-being and return profits to them. Shareholders own and run banks, which are for-profit businesses. Depending on the bank, these investors could be thousands of anonymous stockholders or a few large investors. Banks' primary goal is to maximize profits for their stockholders.

Eligibility for a bank vs. a credit union

The general public has access to banks. Regional banks that operate in a specific area may restrict access to some or all of their banking products to residents of that area. Individual accounts are usually available to anyone over the age of 18 who is a legal resident of the United States. Credit unions should limit their customer base to a "field of membership," or a group of people who have a common interest. The criterion is relatively simple to meet because of where you work, where you live, or your membership in an organization like a school or a place of worship; you may be eligible to join a credit union. You may also be eligible if a member of your family is. Note: Regardless of where you live, there's a good chance you'll be eligible for a credit union nearby. Some even provide remote or entirely online services to members, allowing you to bank with a credit union in another state.

Products from banks vs. credit unions

The products available to most customers—consumers who want to manage personal and small-business finances—will not be limited by their choice of bank or credit union. The basic services provided by both types of financial institutions are nearly identical. Most banks and credit unions offer the below-mentioned services:
  • Accounts to be checked
  • Accounts of savings
  • Accounts in the money market
  • Deposit certificates (CDs)
  • Bank accounts for businesses.
  • Home equity lines of credit (including purchase loans and refinancing)
  • Auto loans for both new and used vehicles are available (including motorcycle and RV loans)
  • Loans for land and construction.
However, specialized products, such as student loans or trustee services are more likely to be offered by a bank. Although it never hurts to ask, a smaller credit union may not be able to meet your needs in these areas. Some small businesses have formed alliances with service providers to offer these products to their customers. Banks and credit unions both provide online banking and mobile apps for account management, though banks may have more cutting-edge features. However, you can use both to view your accounts, make deposits with your mobile device, transfer money between accounts, and pay bills.

Credit Union Rates and Fees vs. Bank Rates and Fees

Both make money by lending money at a higher interest rate than they pay out on deposits. They also profit from fees. Credit unions typically have lower rates and fees. They are not only focused on maximizing profits for members rather than outside investors, but their not-for-profit status exempts them from the same types of taxes that banks are subject to. Credit unions typically have higher savings and CD interest rates, lower loan rates, and lower account fees than banks. With this combination, customers can increase their deposit returns while lowering their loan costs. Because of their higher tax burden and motivation to maximize profits for investors, banks charge lower interest rates on deposits and higher interest rates on loans. All banks and credit unions, however, are not created equal. Some banks, rather than credit unions, may offer better rates. Tip: Before assuming that a credit union will offer you a better deal, shop around.

Credit Union Security vs. Bank Security

Your funds are generally safe in either type of institution as long as the institution is insured. The United States government provides the safest insurance. The Federal Deposit Insurance Corporation (FDIC) protects money held in government-backed banks. The National Credit Union Share Insurance Fund (NCUSIF) protects you with the full faith and credit of the United States government at federal and most state-chartered credit unions. If a financial institution fails, you may be able to get some or all of your money back. Funds that have been lost will be replaced. In most cases, your account will be transferred to a new institution, but your account number and balance will remain the same. Both the FDIC and the NCUSIF protect depositors up to $250,000 per institution. If you have more than that money to manage and protect, divide your funds among different account registrations or institutions. It's also possible to insure more than $250,000 in one place if the funds are spread across multiple accounts with different ownership categories. Your retirement account and your personal checking account at the same financial institution, for example, may be counted separately. Note: A small number of credit unions, primarily through the company American Share Insurance, provide private insurance coverage.

Which is the best option for you?

Both types of financial institutions offer reliable services. Banks have fewer eligibility requirements and, in some cases, more specialized product offerings, but they charge higher fees and offer less competitive rates. Credit unions are more selective in who they accept as members, and small ones may not have the products you need. Those who join the field of membership, on the other hand, have access to more attractive rates and fees. Customer service is, of course, a major consideration for most customers, all other factors being equal. In most cases, whether it's a bank or a credit union, service is determined by the organization's overall culture. The quality of your interactions with employees may vary depending on who you speak with on any given day. Credit unions and small banks, on the other hand, are known for providing more personalized customer service than larger banks. With fewer customers and employees, it may be easier for everyone to get to know one another. Each time you visit a branch, you're likely to work with the same people. You can expect a more consistent but less personalized experience at large banks. Employees who have finished a comprehensive training programme that includes rigid protocols for dealing with service issues, limiting their flexibility to meet your specific needs. Note that participating credit unions also offer service at shared branches, which allows you to visit the branches of other participating credit unions across the country. You can make deposits, withdrawals, transfers, and payments at those locations, but more complicated issues may require consulting with your local credit union.

The Final Word

If you don't care about ownership, the decision comes down to the products you want, as well as the rates and fees you want. To take advantage of both banks and credit unions, you can keep separate accounts at each. If you decide to switch banks or credit unions, take precautions to avoid problems when moving your money. Use a checklist to make the process of switching banks as painless as possible.

Leave a Reply