Consumers can choose to meet their banking needs at banks and credit unions that appear on almost every block. The many similarities between banks and credit unions may leave you questioning which one is best suited for your specific needs.
What is the difference between banks and credit unions?
Banks: Banks are owned by shareholders and investors. They serve the general public. They offer leading market products and applications. They may not offer all types of loans. They pay lower interest on deposits and charge higher rates on loans.
Credit unions: Credit unions are owned by their members. They serve only members. They may not offer all types of loans. They pay higher interest on deposits and charge more favorable rates on loans.
Bank ownership vs. credit union
The main difference between banks and credit unions is in ownership. Credit unions are non-profit organizations. They are owned and controlled by customers known as “members.” The primary goal of credit unions is to promote the financial well-being of their members and return profits to them.
Banks are for-profit organizations owned and operated by shareholders. These investors may be thousands of anonymous shareholders or a few large investors, depending on the bank. The primary goal of banks is to maximize profit for shareholders.
Eligibility for bank vs. credit union
Banks are open to the general public. Regional banks operating in a specific location may restrict some or all of their banking products to people in that area. National banks expand individual accounts to any legal resident aged 18 or older.
Credit unions must limit their customer base to a group of people who share a common bond known as the “field of membership.” This requirement is relatively easy. You may be eligible to join a credit union based on your workplace, residence, or membership in an organization such as a school or place of worship. You may also qualify through a qualifying family member.
Note: There is a good chance you qualify to join a credit union near you regardless of where you live. Some serve members remotely or entirely online, allowing you to bank with a credit union in another state.
Bank products vs. credit union
Neither bank nor credit union options are limited to the products available for most customers — consumers looking to manage personal finances and small business needs. The core offerings in both types of financial institutions are almost the same.
Most banks and credit unions offer:
- Checking accounts
- Savings accounts
- Money market accounts
- Certificates of deposit (CDs)
- Business banking accounts
- Home loans (including purchase and refinance loans)
- Auto loans for new and used vehicles (including motorcycle and recreational vehicle loans)
- Land and construction loans
However, banks are more likely to offer specialized products like student loans or agency services. A small credit union may not be able to meet your needs in these areas, although it doesn’t hurt to ask. Some small institutions have partnerships with service providers that allow them to offer these products to their customers.
Banks and credit unions also offer online banking services and mobile apps to manage accounts, although banks may offer more advanced features. But both allow you to view your accounts, deposit money using your mobile device, transfer money between accounts, and pay bills.
Benefits and fees in credit unions vs. banks
Both types of institutions make profits by lending money at higher interest rates than they pay on deposits. They also profit through fees. Credit unions tend to offer more attractive rates and fees. Not only do they focus on maximizing profit for members rather than outside investors, but their non-profit status exempts them from the same types of taxes that banks must pay.
Both types…
Cooperatives offer higher interest rates on savings accounts and certificates of deposit, lower rates on loans, and fewer account fees than banks. This balance enables customers to maximize their deposit returns and minimize their loan costs. Banks offer lower rates on customer deposits and higher rates on loans due to their higher tax burdens and a drive to maximize profit for investors.
However, not all banks and cooperatives are the same. You may find that some banks offer more competitive rates than cooperatives.
Safety of Cooperatives vs. Banks
Your money is generally safe in any type of institution, as long as the institution is insured. The safest insurance is provided by the U.S. government.
The Federal Deposit Insurance Corporation (FDIC) insures funds held in banks with government backing. The National Credit Union Share Insurance Fund (NCUSIF) protects you with the full faith and credit of the U.S. government at federally insured cooperatives and most state-chartered cooperatives.
Some or all of your money may be insured if the institution fails. Lost funds will be replaced. In most cases, your account will be transferred to a different institution, and you will keep the same account number and account balance as before.
Both FDIC and NCUSIF coverage insures up to $250,000 per depositor, per institution. Spread your money across different account registrations or institutions if you have more than this amount to manage and protect.
It is also possible to insure more than $250,000 in one place if you have the money in accounts in different ownership categories. For example, your retirement account and your individual checking account at the same institution may be counted separately.
Which is Better for You?
Both types of institutions offer strong financial services. Banks typically have lower eligibility requirements and sometimes offer more specialized products, but they often provide less competitive rates and higher fees.
Cooperatives are more selective regarding their members, and smaller cooperatives may not offer the products you are looking for. However, those who join the membership gain access to more attractive rates and fees.
Of course, customer service is a big factor for most consumers, regardless of all other matters. Service often depends on the overall culture of the organization in most cases, whether it is a bank or a cooperative. The quality of your interaction with staff may also depend on whom you speak with on any given day.
However, cooperatives and small banks are known for providing a higher level of personal service to customers compared to larger banks. It may be easier for everyone to get to know each other with fewer customers and staff. There is a good chance you will deal with the same people each time you visit the branch.
Expect a more consistent but less personalized experience at larger banks. Employees are likely to have comprehensive training programs with strict protocols for handling service issues, giving them little flexibility to meet your unique needs.
Note: Participating cooperatives also provide service at shared branches, allowing you to visit other cooperatives across the country. You can make deposits and withdrawals at those branches, as well as transfers and payments, but you may need to deal with your local cooperative for more complex issues.
Conclusion
The decision depends on the products if ownership is not important to you, in addition to the rates and fees you are looking for. You can maintain separate accounts at banks and cooperatives to take advantage of both.
Take steps to avoid issues when transferring your funds if you decide to switch to a different bank or cooperative. Use a checklist for switching banks to make the process as painless as possible.
Source:
https://www.thebalancemoney.com/bank-vs-credit-union-315399
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