What is the Difference Between Credit Unions and Banks?
Wednesday, December 19 CCCU
What's the difference between credit unions & banks?
Credit unions are nonprofit financial coops that pay back members at higher savings rates and lower loan rates. Banks are for-profit corporations who pay earnings to stockholders.
If you’re starting a new bank account in a new city, choosing between a credit union and a bank may be on your mind. However, understanding the way the two work, as well as which is right for you can be complicated. In this piece, we will explore the differences between credit unions and banks.
Credit unions are non-profit cooperatives that tend to serve companies and communities near them. They are typically local, small, and use a democratic, one member, one vote structure to make decisions.
Banks are for-profit companies focused on maximizing profits for shareholders. They can be any size, national or local. They are usually public companies and are led by boards, not members.
Credit union memberships
are restricted. This can be based on where people live, work, attend school, or worship. You can sometimes qualify if you are related to another member of the credit union.
Banks are able to serve anyone, anywhere, as they are a for-profit corporation.
Credit unions typically offer the same services as a bank, but are more likely to provide customer support and attention. For instance, some credit unions will help you buy a car or make choices about which mortgage option to go for based on your individual situation with your best interests at heart. This is part of why credit unions continue to score significantly higher
than banks in almost all areas of customer satisfaction.
Banks offer the same services as credit unions. While most credit unions offer apps and 24/7 customer service, banks may provide more advanced options because of their for-profit model.
Fees and Rates
Credit unions offer better savings rates and loan rates than banks because of their non-profit structure. They are less likely to charge fees and are more accessible to those with lower incomes. They often allow you to open accounts with lower account minimums as well. Some credit unions go so far as to not charge for overdrafts, a true commitment to the communities they support.
Banks generally offer lower interest rates on savings accounts and charge higher interest rates on loans. They generally have additional, more expensive fees as well. However, they may offer better rewards on credit cards. Using these services doesn’t mean you have to use a bank as your primary financial institution.
Credit unions operate via a co-op network of branches. Where there are other credit union branches, you will likely be able to do all of the services you are used to, as well as use their ATMs.
Banks usually only allow you to use their own ATMs and branches, but there are usually more of them if it is a large national bank.
Credit unions and banks are both safe ways to store your money and earn interest. The National Credit Union Administration (NCUA) insures deposits most credit unions and the Federal Deposit Insurance Corporation (FDIC) insures deposits at almost all banks in the United States.
Ultimately, the differences between credit unions and banks are clear. While banks can offer superior technology services in some cases, as well as better credit card rewards, in general most people prefer to use a credit union for their friendly and personal feel.
If you are curious about whether or not a credit union is right for you, get in contact with your local options and find out how they line up with your needs.