When you're researching where to open a new checking account, savings account, or getting a loan, you have more choices than banks. Many people don't realize that credit unions offer the same products as banks. But because your choices are so similar, how do banks and credit unions differ? Although they do offer similar services and solutions, there are important distinctions between these two types of financial institutions.
Understanding the difference between a bank and a credit union can help you make the right financial decisions. Here's what you need to know.
Banks Versus Credit Unions
When you look at the services a credit union offers and the services a bank offers, you might notice they are almost identical. One main thing that separates credit unions from banks is their profit status. Banks are for-profit institutions, which means they are privately owned or publicly traded. Credit unions, on the other hand, are non-profit financial organizations.
The profit status of these institutions is the only difference between credit unions and banks. Now, let's go a little more in-depth.
A credit union is owned by the members as the institution itself is cooperative. These institutions open membership to individuals who share a common bond, such as industries, communities, faith, or membership in other organizations.
Additionally, credit unions are exempt from federal taxes. Simply put, credit unions don't have to worry about making profits. Typically, a credit union's mission is to provide members with the best terms for financial products, like loans. This typically means lower rates, fewer fees, and higher APY’s.
While banks are in business intending to make a profit, which means they care most about profit and not about the needs of their account holders. Banks charge more fees and higher rates than most credit unions.
Benefits of Banks
Credit unions sound like the clear winner for all of your financial needs because they are not for profit. However, there are some reasons why you might want to choose a bank.
1. Open to All
Banks are open to any person interested in opening an account or getting a loan. Credit unions, on the other hand, are only open to members, so you might not be eligible for membership. Luckily, there are still tons of credit unions that aren't picky about their members as long as you live or work in their local community, so you're likely to find a credit union that can serve your needs.
2. More Branches
Banks typically have more branches available compared to credit unions. This adds a level of convenience to access your money that credit unions don't have yet. That being said, many credit unions partner with co-ops to offer you additional availability and access to ATMs no matter where your location is.
3. Financial Technology
Banks surpass most credit unions in terms of financial technology. If you use a bank and a credit union, you might find your bank has an app and your credit union doesn't. Because banks are for-profit institutions, they have money to invest in technology.
However, don't count credit unions out just yet. Many of them are striving to provide services like mobile check deposits and banking apps.
Benefits of Credit Unions
1. Member Priority
Because credit unions are cooperative, they put their members first and are known for exceptional customer service. When members go to a credit union, they usually get personal attention, and someone focused on their needs. Your membership in a credit union is also good for life, even if you leave the community served by the credit union.
2. Financial Education
Because credit unions put the members first, they provide all of their members with financial education as part of their services. They provide you with online articles and tools along with seminars about important financial topics such as managing credit cards, buying a home, planning for retirement, and more.
Credit unions are ideal for students and those who don't know how checking and savings accounts work because these institutions are ready and willing to provide members with the right education about products and services before you open up an account. Banks, on the other hand, want you to open an account and will put very little effort into making sure you understand how each account works.
3. Financial Benefit
Credit unions also provide financial benefits. Any profit the credit union gets will be distributed to members by earning interest in deposit accounts or receiving checks periodically. Because credit unions are non-profits, they typically have no minimum balance requirements and lower deposit requirements to open accounts.
Fees with credit unions are typically lower because they are member-focused and not for profit. Banks charge you fees to make a profit, whereas credit unions have fewer fees because they don't need your money.
In addition, you're likely to receive lower interest rates on loans from a credit union than you are from a bank.
Making the Right Choice
When it comes to your money, it's ultimately up to you to decide which is best: a bank or a credit union. Many people who just graduated college choose to open accounts with a credit union because they offer benefits.
Banks and credit unions offer the same services, so it's best to decide your main concerns and focus. For example, if you want to make sure you have access to a bank or ATM nationwide, you might choose to work with a bank. However, if you're looking for lower rates on loans, you might choose to work with a credit union.
The good news is you can use both a bank and credit union to manage your finances, depending on your needs. If your goal is to buy a house, you have two great options if you have a relationship with both a bank and a credit union. If you want to explore estate planning options, both a bank or a credit union can help with that. For either of those two examples, you can meet with representatives from both institutions to determine which one is right for you.
Matt Casadona has a Bachelor of Science in Business Administration, with a concentration in Marketing and a minor in Psychology. Matt is passionate about marketing and business strategy and enjoys San Diego life, traveling, and music.