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Bank vs Credit Union
Choosing between banks versus a credit union could be a big decision.
Both hold money but operate in different ways.
Today we will see the similarities and differences between the two to help you decide which institution will be the best fit for you! Choosing between banks versus credit unions is a big decision when finding a place to store your money.
In the first place, the similarities between banks and credit unions may seem obvious because they both offer checking and savings accounts and provide loans and credit cards, however, there are some differences between banks and credit unions that could affect your banking experience.
A bank or credit union might be a better option for you, depending on your particular needs.
What is a Bank?
Banks are a place where you deposit your money, and in return, they lend out a portion of that money to people who are in requirement of loans.
As a result, the banks earn interest from these loans, and in return, they offer you a small amount of interest and further tempt you to deposit more money so they can earn more interest.
In general, banks allow anyone to open an account with them.
There are only a few requirements to open an account, which is living within the bank’s service area, being an American citizen, and maintaining the minimum balance requirements.
These banks can be owned either by private investors or are traded openly on the stock market. Either way, banks have owners and shareholders who have a lot to say in regards to the decisions that banks make.
What is a Credit Union?
The credit union is a nonprofit making organization. People who actually use the credit union like opening an account or taking out a loan are the members who own them.
However, the credit union’s membership is restricted to people of a certain group. Like for people who live or work in certain areas, or for certain employers having family connections to the credit union.
Credit unions are also governed by boards of directors who make the decisions based on the best interest of the members.
This just means that compared to banks they make a slightly different decision because they’re not trying to boost profits for a small group of bank owners.
These are the basics that you need to know about banks and credit unions themselves, now let us look at the difference in their key banking components.
Let's Compare Bank vs Credit Union
Products of a Bank vs Credit Union
A similar suite of basic products is offered by banks and credit unions. For eg, almost all banks or credit unions offer basic checking and savings accounts, and in regards to some products they differ.
A wider range of saving accounts is more likely being offered by credit unions. Credit unions also commonly offer savings accounts for kids and teens.
On the other hand, Banks are more likely to offer more specialized high-end products like wealth management, investments, or business accounts.
Getting Mortgage from Bank vs Credit Union
A credit union guarantees lower fees and interest rates be it mortgages, credit cards, personal loans, or other financial products Credit unions often offer lower interest rates and APR compared to the average bank.
These rates do not hinder your financial flexibility.
The same applies to fees, which are comparatively reasonable because they don’t charge you with appraisal, origination, processing, tax service, and underwriting fees.
As per the National Credit Union Administration, the median credit score to secure a mortgage with a credit union was 753, which is lower than the score for banks.
This means that you don’t need the perfect credit score to secure a mortgage from the credit union.
Interest Rates of Bank vs Credit Union
In general, better interest rates on deposit accounts are offered by credit unions, and also lower interest rates on loans. Due to their own characteristics, this is possible as we have seen earlier.
Credit unions make the best decisions for their members.
Because this will generate more profits for its owner’s banks often have poor interest rates. This is not necessarily always the case.
There are many innovative online products that are being offered by big banks that are giving even higher interest rates than credit unions.
Safety with Bank vs Credit Union
The good news is that whether you choose to deposit it in a bank or in a credit union your money is safe, but that is only up to a point. The credit unions are shielded by the National Credit Union Administration.
And hence the program provides up to $250,000 worth of insurance at each credit union for every person. And Federal Deposit Insurance Corporation covers the banks.
This insurance program also provides up to $250,000 worth of insurance for each person at all the banks. Even if these are different insurance programs, they function almost the same at banks and credit unions.
The thing to make sure of is to keep less than $250,000 at any given bank or credit union so your money is safe.
Convenience with Bank vs Credit Union
The best part of a big national bank is that they are available all over the country. They’re a big bank like Wells Fargo which seems to be everywhere in the country. This is very convenient when you need to move in the future.
You may be forced to switch banks if you’re banking with a local credit union on the west coast and end up moving to the east coast.
Even if most credit unions are not available nationwide they still partner up with a network of nationwide ATMs to provide convenience to you to access your cash when you are away from home.
With your credit union, you may even be able to do your banking in person at a shared branch location.
However you could be charged a fee for each visit, please check that out. Many credit unions are also available online. So you’ll be able to access your money digitally even if you move away.
Customer Service of Bank vs Credit Union
The local bank and credit union are operated by people within the same community, so if you do your banking in person there usually wouldn’t be much of a difference in the customer service between the two.
However, if you need special accommodations then there could be a difference, for example, if you find it hard and need to take a temporary break in loan payments then the manager of your local credit union may be able to give you more liberty.
Credit unions are designed to serve their members and not owners and shareholders, so they could be more adjusting to help you out.
Conclusion
So if you want to decide which one is best for you consider the following – Do you like the idea of being a member rather than a customer?
If the idea is to earn higher interest rates on deposit accounts and paying lower interest rates on loans then a credit union might be better for you.
And meanwhile, if you prefer convenient banking across the entire country, and want a wider range of high-end banking products, then you would want to go ahead with a bank.
The above generalities can help guide your search for a new banking institution, but there is no hard and fast rule.
The possibility is you may be able to find a bank with a higher interest rate on deposit accounts and a credit union with a wider variety of products. It completely depends on the bank or credit union that you are visiting.
So make a list of things that are important to you and your financial life and then base your search on those criteria. Then whether you choose the bank or credit union, you’ll be happy with the end result.
