A big decision when finding a place to store your money is choosing either a credit union, or a bank. Today we’re going to be walking through these similarities and differences of these two financial institutions.
At first glance, the similarities between banks and credit unions may seem evident. As they both offer, checking and savings accounts and even loans and credit cards, but there are some very real differences between banks and credit unions that may affect your banking experience. Depending on your particular needs, a bank or credit union might be a better option for you.
So what is a bank? A bank is a business. Banks allow you to deposit your money with them. In turn, they lend out a portion of that money to people who need loans. Banks are in interest offering the loans and to entice you to deposit more money, so they can make more loans and earn more interests. They offer you a small amount of interest in turn.
In general, banks will let anyone open an account with them. There are only a couple specific requirements to open an account, like living within the banks service area, being a us citizen and meeting the minimum balance requirements. Banks can be owned by private investors or treated openly on the stock market. Either way, banks have owners and shareholders who drive a lot of the decisions that banks make.
A credit union, on the other hand, is a non-profit organization. They are owned by members which are people who actually use the credit union like opening an account or taking out a loan. Membership is usually restricted to people in a certain group. For example, people who live or work in certain areas, who work for certain employers, who have a family connection to the credit union. Credit unions are governed by boards of directors who make the decisions based of the best interests of the members. This means that they make slightly different decisions than banks because they are not trying to maximize profits for a small group of bank owners.
Now that a little more about banks and credit unions themselves, here’s how they differ on key banking components, products. Banks and credit unions offer a similar suite of basic products. For example, basic checking and savings accounts are offered at most any bank or credit union, but they do it differ on some product. Credit unions are more likely to offer a wider range of savings accounts. It’s also common for credit unions to offer kids and teens savings account. Banks, on the other hand, are more likely to offer more specialized high ened products like wealth management, investments or business account.
Interest rates. In general, credit unions offer better interest rates on deposit accounts and lower interest rates on loan. This is due to their ownership characteristics. As we talked about earlier, credit unions are owned by and make the best decisions for their members. Banks often have poorer interest rates because this will generate more profits for its owners. This however isn’t a hard and fast rule. There are many big banks coming out with innovative online product that are offering even higher interest rates than credit unions.
Safety. The good news is that your money is safe whether you choose to deposit it in a bank or a credit union that is up to a point. Credit unions are covered by the national credit union administration. This program provides up to $250,000 worth of insurance per person at each credit union. Banks are covered by the federal Deposit Insurance Corporation. This insurance program also provides up to $250,000 worth of insurance per person at each bank. Even though these are different insurance programs, they still function pretty much the same, just make sure you keep less than $250,000 at any given bank or credit union and your money is safe.
Convenience. The great thing about a big national bank is that they are available all over the country. There seems to be a big bank like Wells Fargo everywhere. This can be convenient if you end up moving in the future. If you’re banking with a local credit union on the west coast and moving to the east coast, you may be forced to switch banks, even though most credit unions aren’t available Nationwide money so partner up with a network of Nationwide ATMs to provide you with access to cash when you are away from home. You may even be able to do your banking in person at a shared branch location with your credit union. You could, however be charged to fee for each visit. Many credit unions are also online. So even if you move, you’ll be able to access your money digitaling.
Customer service. Your local bank and credit union are staffed by people within your community. Thus there usually isn’t much of a difference in a customer service between the two if you do your banking in person. There could be a difference, however, if you need special accommodations, the manager of your local credit union may be able to give you more leeway if you fall on hard times and need to take a temporary break in loan payments for example.
Credit unions are designed to serve their members, not owners and shareholders, so they may be more inclined to help you out. So which one is best for you? If you like the idea of being a member rather than a customer, earning higher interest rates on deposit accounts and paying lower interest rates on loans, then a credit union it might be better for you. On the other hand, if you prefer convenient banking across the entire country and a wider range of height and banking products, then you might want to go with the bank. These generalities can help Guide your search for a new banking institution, but it’s not always the case across the board.
You may be able to find a bank with a higher interest rate on deposit accounts or a credit union with a wider variety of products. It totally depends on the bank or credit union you are visiting. So start with a list of what’s most important to you in your financial life and then base your search off of that criteria, that way, no matter the bank or credit union you choose you’ll be happy with the end result.