Community banks and credit unions are often mentioned in the same breath because both exist to serve specific communities or target audiences. Both aim to provide a better banking experience than large banks by providing more customer-centric services. Both serve customers by offering several financial products and services, such as checking and savings accounts, loans, mortgages, and investment opportunities. However, there are distinct differences between the two that may make one more suited for you than the other. Below are six differences:
1. Ownership of community banks vs. credit unions
Community banks are typically privately owned and operated as for-profit entities. They are owned by shareholders and generate profits for those shareholders. Their customers are typically members of the local community where the bank is located. On the other hand, credit unions are not-for-profit organizations owned and operated by their members. Their customers share a ‘common bond’ with the credit union, and they pool their resources to offer financial services to each other at a lower cost than what is typically offered by for-profit banks.
2. Services offered
Community banks often offer a more comprehensive range of services than credit unions, including investment products, wealth management services, and insurance products. Credit unions typically focus on providing essential financial products and services, such as checking and savings accounts, loans, and mortgages.
3. Members only vs. everyone in the community
Only individuals who meet specific criteria can become members of credit unions and take advantage of the financial services offered by the credit union. For example, credit unions may only accept members who live in a specific geographic area, work in a certain industry, or belong to a particular organization. On the other hand, community banks are typically open to anyone who wants to open an account or apply for a loan in the community or neighborhood they serve.
4. Fees for the financial products
Credit unions often charge lower fees for their services than community banks. For example, credit unions may offer free checking accounts, while community banks may charge monthly fees for this service. Additionally, credit unions often charge lower interest rates on loans than community banks. This is because credit unions are not-for-profit organizations and do not need to generate profits for shareholders.
5. Interest rates
Community banks often offer higher interest rates on savings accounts and certificates of deposit than credit unions. This is because community banks are for-profit entities that need to generate profits for their shareholders.
6. Safety for your money
Both community banks and credit unions offer equal safety for your money via federal government-backed insurance. Accounts in community banks and credit unions are insured for amounts up to $250,000 via either the Federal Deposit Insurance Corp. (FDIC) for community 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.
Conclusion
Community banks offer a more comprehensive range of services and are typically more accessible than big banks. They also tend to charge higher fees and interest rates. Credit unions offer lower fees and interest rates, but their services may be more limited, and membership eligibility requirements may be restrictive. For individuals who value a more comprehensive range of services and accessibility, a community bank may be the best choice. A credit union may be the way for those who prioritize lower fees and interest rates. Before choosing a financial institution, it is crucial to consider your specific needs and compare the available options to find the best fit.
Key Takeaways
- Ownership of community banks vs. credit unions
- Services offered
- Members only vs. everyone in the community
- Fees for the financial products
- Interest rates
- Safety for your money
