When it comes to managing your finances, you have several options. Two of the most popular are credit unions and banks. Both offer financial services, but there are differences between the two. In this article, we’ll compare credit unions vs. banks and help you decide which one is better for you.
What’s the Difference Between Banks and Credit Unions?
Banks and credit unions are somewhat similar. Both offer financial products such as savings accounts, checking accounts, and loans. However, there are several differences between the two.
First, banks are for-profit institutions owned by shareholders. They exist to make money for their shareholders. On the other hand, credit unions, are not-for-profit institutions which are owned by their members. They exist to serve their members and typically offer lower fees and higher interest rates on deposits.
Second, banks are typically larger and have a wider range of products and services than credit unions. Banks may have multiple branches and offer online banking and mobile apps. Credit unions are typically smaller and may have fewer branches and limited online banking capabilities.
Third, membership requirements for credit unions are often more strict than for banks. If you want to join a credit union, you must meet certain eligibility requirements such as working for a certain employer or belonging to a specific group. Banks do not have membership requirements.
Top 7 Pros and Cons of Working with Credit Unions
Pros of working with credit unions
- Lower fees: Credit unions are not-for-profit organizations and typically have lower fees than banks.
- Higher interest rates: Credit unions typically offer higher interest rates on savings accounts and other deposits than banks.
- Better customer service: Credit unions are well known for providing better customer service than banks. Because credit unions are smaller, they can provide more personalized service to their members.
- Community-oriented: Credit unions are often focused on serving a particular community or group of people. This can make them more attuned to the needs of their members.
- More forgiving: Credit unions are often more forgiving when it comes to credit scores and loan applications. They may be more willing to work with you if you have a less-than-perfect credit history.
- Shared branching: Many credit unions participate in a shared branching network. This means that you can use other credit union branches to conduct your banking business, even if you’re not a member of that particular credit union.
- Better rates on loans: Credit unions often offer better rates on loans than banks. This can be particularly helpful if you need to borrow money for a large purchase such as a car or home.
Cons of working with credit unions
- Limited services: Credit unions may not offer as many services as banks, particularly online banking and mobile apps.
- Membership requirements: To join a credit union, you must meet certain eligibility requirements. This can limit your options if you don’t qualify for membership in any local credit unions.
- Limited branches: Credit unions may have fewer branches than banks, particularly in rural areas.
- Smaller ATMs networks: Credit unions may have smaller ATM networks, making it more difficult to access your money when you’re away from home.
- Lower technology investment: Credit unions may have lower investment in technology and IT infrastructure. This can mean slower adoption of new banking technologies and tools.
- Membership responsibilities: As a member of a credit union, you may be required to attend meetings and participate in decision-making processes.
- Deposit insurance limit: Credit unions are insured by the National Credit Union Administration (NCUA). NCUA provides up to $250,000 in deposit insurance per account. This is the same as the FDIC limit for banks, but it may be a concern for those with large deposits.
Top 7 Pros and Cons of Working with Banks
Pros of working with banks
- Wide range of services: Banks typically offer a wider range of services than credit unions. This can include investment services, credit cards, and mortgage products. Banks may also have more branches and more robust online and mobile banking capabilities.
- Convenience: Banks often have more branches and ATM networks, making it more convenient to access your money and conduct banking business.
- Technology investment: Banks typically have larger budgets for technology and IT infrastructure, which means they may adopt new banking technologies and tools more quickly than credit unions.
- No membership requirements: Banks do not have membership requirements, so anyone can open an account with a bank.
- Large deposit insurance limits: Banks are insured by the Federal Deposit Insurance Corporation (FDIC), which provides up to $250,000 in deposit insurance per account. This is the same as the NCUA limit for credit unions, but it may be a concern for those with large deposits.
- Rewards programs: Banks may offer rewards programs for credit cards, checking accounts, and other products, which can provide additional benefits to customers.
- Better access to global services: Banks often have a wider range of global services, including international wire transfers and foreign currency exchange.
Cons of working with banks
- Higher fees: Banks are for-profit institutions and typically have higher fees than credit unions. This can include monthly maintenance fees for accounts, ATM fees, and overdraft fees.
- Lower interest rates: Banks typically offer lower interest rates on deposits than credit unions, which can mean less money earned on savings over time.
- For-profit model: Banks are owned by shareholders and exist to make a profit. This can sometimes lead to a focus on profits over customer service.
- Less personalized service: Because banks are typically larger than credit unions, they may provide less personalized service to customers.
- More stringent credit requirements: Banks may have more stringent credit requirements than credit unions, which can make it more difficult to obtain a loan.
- Limited forgiveness: Banks may be less forgiving when it comes to credit scores and loan applications. If you have a less-than-perfect credit history, you may find it more difficult to obtain a loan from a bank.
- Limited community involvement: Banks may be less involved in the communities they serve than credit unions, which can make them less attuned to the needs of their customers.
Membership Requirements and Deposit Insurance
It’s important to note that credit unions have membership requirements, while banks do not. In order to join a credit union, you must meet certain eligibility requirements, such as working for a particular employer or belonging to a specific group. Banks do not have these requirements, so anyone can open an account with a bank.
Credit unions are insured by the National Credit Union Administration (NCUA), which provides up to $250,000 in deposit insurance per account, the same as the FDIC limit for banks. This means that deposits at credit unions are just as safe as deposits at banks. However, it’s important to note that the NCUA only insures deposits at federally insured credit unions. If you choose to do business with an uninsured credit union, your deposits may not be protected.
Which One is Better for You?
The choice between a credit union and a bank ultimately depends on your personal preferences and financial needs. If you value personalized service, community involvement, and lower fees, joining a credit union may be the best option for you. If you need access to a wider range of services, larger ATM networks, and more robust online banking capabilities, a bank may be a better fit.
Consider your banking habits and preferences before making a decision. If you’re not sure which option is best for you, consider opening accounts at both a credit union and a bank and seeing which one you prefer.