What’s The Difference Between A Credit Union And A Bank?
You’ve no doubt heard the term: credit union. But do you know what it is exactly? How it differs from a bank? Maybe you’ve even wondered from time to time if using a credit union instead of a bank would be the better choice for your finances.
Here’s a look at what differentiates a credit union from a bank, and which might better suit your monetary management needs, now and in the future.
A credit union is a not-for-profit financial institution owned by its members – the people who make use of its services. Because credit unions don’t need to show a profit, their only objective is to offer members the best possible products and rates.
In general, because credit unions are smaller than standard banks they often limit membership to certain groups of people. Examples of credit union groups include employees of the same company, residents living in a specific geographic location, members of a civic organization, or followers of a certain religion. Members can vote on a credit union’s policies and have an impact on its operations.
Credit Union Pros…
• Customer Service
Credit unions are known for prioritizing personal service. Because members vote on policies, services tend to be tailored to customer needs.
• Favorable Interest Rates And Lower Or No Fees
Credit unions aren’t looking to make a profit; as a result, they usually offer lower rates on loans and higher interest rates on deposits. In addition, credit unions keep fees as low as possible, which oftentimes means that checking accounts have no minimum balance requirements or monthly maintenance fees.
The National Credit Union Administration insures credit union accounts up to $250,000. You can open multiple accounts if you need higher coverage limits.
• Limited Financial Products
At most credit unions you’ll find financial products and services such as checking and savings accounts, loans, CDs, and basic credit cards, but the breadth of products usually doesn’t rival that of banks.
• Limited Locations
You can expect fewer branches and ATMs with a credit union. However, many credit unions have joined the CO-OP Shared Branch and ATM network, which allows members to access branches and ATMs from all other credit unions in a nationwide co-op.
• Limited Membership
Each credit union maintains membership eligibility requirements called a “field of membership.” For example, the Navy Federal Credit Union accepts current and retired members of the armed forces along with their families and household members, and also Department of Defense personnel. Many larger national credit unions require you to be part of certain easy-to-join organizations in order to become a member. Alliant Credit Union, for example, requires members to join Foster Care for Success by donating $5, which can be reimbursed.
Banks are owned by investors and are for-profit institutions. The main goal of a bank is to make money for the investors. Because banks don’t have memberships, they don’t restrict eligibility to certain groups of people; individuals who live in a bank’s serviceable area can open an account and become a customer.
Banks often maintain both brick-and-mortar institutions as well as online operations. Online banks are often completely virtual, meaning that they don’t offer face-to-face service, but they generally have lower costs, resulting in better rates on products and services.
• More Financial Products
As compared to credit unions, banks usually offer a wider range of products, including investment accounts, wealth management services, money market options, credit card choices, and more.
• More Accessibility
Big banks usually have a plethora of branches and ATMs. Chase, for example, has more than 4,700 branches and 16,000 ATMs. Unlike credit unions, most banks don’t have eligibility requirements to join.
The Federal Deposit Insurance Corporation (FDIC) insures bank accounts up to $250,000. For higher coverage, you can divide your finances among multiple accounts.
• Worse Rates And Higher Fees
Because banks are looking to make a profit, they tend to offer higher loan rates than a credit union, but you may be able to find a better rate at an online bank vs a brick-and-mortar bank. As compared to credit unions, banks usually charge higher fees on such things as checking accounts, minimum balances, bounced checks, and overdrafts.
• Less Flexible
Banks answer to a board of directors and must follow specific rules and protocols. As a result, banks are generally less flexible in their offerings, which can adversely impact overall customer service.