Banks and credit unions seem similar because they use the same language when promoting their financial products and services. However, they differ in a variety of ways especially when it comes to convenience, especially if the credit union has good online services and is a co-op member that provides access to branches and ATMs nationwide. Here are a few key differences between credit unions and banks. Below are some of the most import:
1. Ownership of banks vs. credit unions
Banks are for-profit institutions owned by investors and are obligated to deliver a profit to their shareholders. Credit unions are owned by their members as not-for-profit organizations, which means people who use their financial services are more involved in credit union operations. Members of credit unions get to vote on policy changes and leadership, which is not an option at banks. In short, credit union members are part owners of the institution, while investors of banks are part owners of banks.
2. Members only vs. everyone
Almost anybody can open a bank account, but you must qualify for membership with a credit union. Members often have shared interests and vote to elect a volunteer board of directors. Some membership requirements are more accessible to members than others. If you qualify, you usually pay a one-time membership fee, and may need an opening deposit to fund your account.
3. Safety for your money
Both banks and credit unions offer equal safety for your money via federal government-backed insurance. Accounts in banks and credit unions are both insured for amounts up to $250,000 via either the Federal Deposit Insurance Corp. (FDIC) for banks or the National Credit Union Administration (NCUA) for credit unions. The NCUSIF (National Credit Union Share Insurance Fund) insures credit unions, while the FDIC (Federal Deposit Insurance Corporation) insures banks.
4. Fees for financial products
Since banks must make money for their investors, they often charge higher fees than credit unions. Credit unions usually have the lowest interest rates on loans, which can be an excellent option for local businesses that need low costs and lower interest rates. Credit unions may offer lower interest rates on loans, but the array of financial products may be limited in scope compared with big banks. Banks often provide a wide variety of banking services and a digital bank for those who need access online banking.
5. More extensive ATM network
Most credit unions cannot compete with banks regarding convenience (access to ATMs and branches) and technology like mobile banking. Both credit unions and banks often charge fees for using ATMs that aren’t in their networks, so make sure you know which ones to use. Credit unions tend to have their branches and ATMs, but when they don’t, they may be able to offer them with the help of financial services technology by the Co-op organization.
Conclusion
A credit union is an excellent option for those eligible for membership in their community. A credit union may be worth joining if you prefer low fees and lower interest rates and you prefer to bank local. For years, banks have provided better technology with better online apps, tools, website features, and mobile banking services but many credit unions are closing the gap. Credit unions will likely offer you lower-cost services and better interest rate options for both loans and deposits while offering online access previously unavailable. Banks will likely provide more services and products and more advanced technologies but this isn’t always the case. You’ll need to consider factors like these in deciding which type of institution will best serve your needs.
Key Takeaways
- Ownership of banks vs. credit unions
- Members only vs. everyone
- Safety for your money
- Fees for the financial products
- More extensive ATM network
