Banks and Credit Unions have many similar features but there are some stark differences to make note of.
On the surface, banks and credit unions look to offer the same thing. They provide a myriad of financial products to cater to their clientele. For both, you can open a savings account, take out a loan, or apply for a line of credit. The similarities often draw questions as to why each doesn’t identify with the other.
There are actually a lot more differences than what you see on the surface. Examining these different aspects can give you insight into what institution to choose. Here’s what you need to know about the difference between banks and credit unions:
An Overview of Banks
Banks are the most common financial institution everyone has likely encountered before. They offer different financial products to their customers. A common experience is opening a bank account to save money or receive a salary from your workplace. While banks provide distinct products to help their clientele, there is one thing you should never forget about them.
Banks are for-profit institutions, meaning they engage in business to earn money. This is why you encounter interest rates, fees, and the like. Banks handle large amounts of money and provide convenience for their clients in exchange for payment for their services, but investors, owners, and shareholders are the ones reaping the rewards from the net profits.
Because banks operate to gain profits, they change policies and services to what they think will be better for their future. Clients do not have a say in how a bank changes, though most changes don’t generally affect them. Sometimes the bank may increase fees, run promotions to attract clientele, or open new branches in other locations.
There are several benefits to using banks. The biggest of all is their presence. Banks have multiple locations in your area, and many have national branches. That means it’s easy to transact with them, and they also have ATMs to withdraw money from numerous locations. Here are some other things you’ll likely find in a bank:
Banks use the latest technology to give them an edge over other banks. They adopt things such as online and mobile banking, credit/debit cards, and more.
Banks offer specific programs and products that cater to businesses. Some programs may cater to different personal needs, depending on what they decide to offer. One example of this is bank accounts for employees of a specific company.
There are more investment options available with banks as they want to attract all sorts of customers. You can open an account for investing in bonds, stocks, mutual funds, and retirement funds.
An Overview of Credit Unions
You’ll often find a credit union in your local community. This is because these are financial institutions that cater to an area, a specific industry, or a group of companies. Similar to banks, they offer products like savings accounts and loans. The biggest difference between them and banks is that they are nonprofit financial institutions.
Credit unions were created for their members, and it’s also these people who maintain them. Every product and service a credit union offers is a result of voting. Members are also the ones responsible for keeping the credit union running by being its clientele. The financial institution only takes enough money to keep operating and never for additional profit.
As such, any changes or upgrades made in credit unions are foremost the decision of its members. They are also the ones that help fund the conveniences or products they want to add. Clients always have the final say because they are the credit union’s stakeholders. The majority must agree before the credit union does anything.
The biggest benefit of credit unions is their interest rates for loans. Most of their products have lower interest than banks because they don’t need to profit from these transactions. Another reason why people like them is because they are a local community bank. A local financial institution with low interest for loans can benefit businesses.
Credit unions don’t require membership fees or monthly charges either. There are some exceptions, but credit unions usually gain the money they need through other fees and interest rates. They encourage people within their vicinity to open accounts with them and become members.
Another thing you’ll notice with credit unions is their savings products have higher interest rates for earning. That means you’ll generally gain more for saving money in a credit union savings account than you would in banks.
Banks or Credit Unions?
While there are specific benefits with each, it also means that each comes with challenges for its clientele. Credit unions don’t have the variety of products and services that banks offer. They also have limited physical branches and ATMS. Accessibility may be an issue when you’re traveling to another location. Many credit unions have begun adopting mobile and online banking technology, but they’re not as robust as those you would find in a bank.
On the other hand, you’ll save a lot more money with loans and earn more in savings products in a credit union. Banks generally charge higher because they have to profit. That means higher interest rates with loans and lower interest with savings. Banks also have strict rules and requirements before opening their products and services to clients. Credit unions are a lot more flexible and personalized because they focus on the members they have.
Both banks and credit unions have financial authority with the full trust of the U.S. government. That means these institutions have insurance and protection for their clients in case of bankruptcy.
Choosing one or the other depends on what you find the most advantageous. Those who want more banking products and nationwide access may choose to open accounts in banks. On the other hand, a local business that wants better loan terms and flexible requirements may choose a credit union instead. It’s all about your personal needs and preferences.
Finny the Finance Bot says…
Should I choose a bank or a credit union for my banking needs?
The decision between a bank and a credit union for your banking needs depends on several factors. Here are some things to consider:
- Membership: Credit unions are member-owned organizations, and you must be a member to use their services. Banks are for-profit organizations that are open to anyone.
- Interest rates: Credit unions often offer higher interest rates on deposits and lower interest rates on loans compared to banks.
- Fees: Banks tend to charge more fees than credit unions, such as monthly maintenance fees, overdraft fees, and ATM fees.
- Customer service: Both banks and credit unions offer customer service, but credit unions are often known for having more personalized and local service.
- Products and services: Banks generally offer a wider range of products and services, such as investment and wealth management options.
- Convenience: Banks often have more branches and ATMs, which can be more convenient if you frequently travel or need access to cash.
It’s important to consider your individual financial needs and priorities when deciding between a bank and a credit union. Consider shopping around and comparing the fees, interest rates, and products and services offered by each before making a decision.
The author generated Finny the Finance Bot’s text in part with GPT-3, OpenAI’s large-scale language-generation model. Upon generating draft language, the author reviewed, edited, and revised the language to their own liking and takes ultimate responsibility for the content of this publication.