Storing your hard earned money in a safe place that you can access that isn’t underneath your mattress is a pretty important part of life. When the average person thinks of this sort of place, they probably think of a bank. Banks, however, are not the only place that have a variety of financial services.
A bank’s close relative, the credit union, is another institute that offers fiscal services, such as checking accounts, mortgages, credit cards, and other types of loans.
Though banks and credit unions offer many of the same services and products, they have their fundamental differences. For instance, banks refer to their users as “customers” and a credit union will call them “members”. Comparing the two institutes can help you choose which will be best for you.
The Business Side
When looking at the business aspect of a bank and a credit union, the two differ greatly. A bank is a for-profit company that is looking to make as much money as they can. A credit union, on the other hand, is a not-for-profit operation that is member run and are not looking to make any money at all.
Banks have a corporate head and a board of members are paid and have the final decision for any choices that must be made for the business. A credit union is a sort of democracy and every member gets a say in making resolutions to issues on the agenda. The members of the board for a credit union are voluntary and distribute any earnings via interest and dividends among all the other members equally.
Credit unions are typically small and are fitting to the location in which they serve. Banks come in all sizes and can be found nation wide.
Eligibility to Join
Eligibility to become a customer at a bank or a member at a credit union differ largely. Banks traditionally will accommodate any person who decides to use their service. For a bank to deny a person an account or a loan, they typically must have a very bad credit or banking history or owe the bank money from previous interactions.
Credit unions service people who meet specific criteria. For example, based on the location you live or your occupation, you can qualify to become a member at a credit union. Other credit unions will accept you as a member if you make a donation to a certain charity. The Federal Credit Union Act states that once you become a member of a credit union, you are a member for life, even if you leave your affiliate group, unless you choose to terminate your membership. Banks are typically easier to become a customer at since you MUST meet the given criteria at the credit union.
Though both banks and credit unions offer many of the same services, banks usually offer a wider variety and more types of specific services. A bank, for instance, may offer 20 different types of certificates of deposit, whereas a credit union only offers 2 types. Credit unions focus on services that are consumer focused. Banks are more likely to offer their services to small businesses.
Though credit unions may have a smaller list of the services they provide, they typically come at lower fees and have better interest rates than at a bank.
Customer Service and Convenience
Since credit unions are typically much smaller, they will be much harder to access while traveling. To make up for a lack of physical locations, many credit unions have joined ATM sharing programs that will allow you to access other companies and credit union’s ATM’s with little to no cost to you.
Most credit unions don’t have great (if any at all) online services or banking apps. Banks, especially large branches with locations all over the country, are much easier to access anywhere you go. Banks also will have great electronic means of transactions.
Credit unions also tend to have more limited hours than banks. Credit unions compensate their short hours and access limitations by having outstanding customer service.
Since credit unions are small, they are more personal than a bank. Big banks tend to have very low customer satisfaction ratings. In 2014, the American Customer Satisfaction Index only gave banks a 76/100 for their customer service, but gave credit unions an 85/100.
Fees and Rates
Fees at a credit union are generally much lower and they also have much fewer fee’s compared to a bank. Credit unions will also have a much lower maximum amount of times you can be charged a fee a day. An overdraft fee at a bank may be $45 per transaction, but the same overdraft at a credit union would only be $20 and can only be placed on the account one time.
Banks, unlike credit unions, generally have a minimum amount you must have in an account. If your balance falls under that certain amount, you will be charged a fee. Credit unions normally have lower minimum deposit amounts to open an account as well. Banks tend to have lower interest rates on services that draw interest, such as a certificate of deposit or a money market account, and charge a higher interest on loans. Credit unions, however, do not offer as many rewards for using their credit card as banks do.
Credit unions are not subject to federal taxation since they are not-for-profit. They pay no federal or state income taxes since they have no income. The lack of taxation is partially why credit unions have much better interest rates than banks. Banks, since they make a profit, will have to pay income taxes either via their earnings or through the pockets of their owners. Both credit unions and banks must pay payroll, sales, and/or property taxes both federally and locally.
Insurance on Deposits
Both credit unions and banks have deposits made to them backed up and insured. The Federal Deposit Insurance Corporation (FDIC) is used for banks and the National Credit Union Administration (NCUA) is used for credit unions. Both companies will insure up to $250,000 in an account depending on what type of account it is. These companies make putting your money into either a bank or a credit union safe.
Weigh Your Options
When trying to decide whether you should use a credit union or a bank, take into account what you will need from them. Credit unions are typically cheaper, but banks are easier to access while you are on the go. Credit unions have better customer service, but banks offer more services that may suite your needs better, especially if you are looking for a business account.
If you don’t meet the credentials to get into the credit union, you will not be able to use their services, whereas you will be able to always have services at a bank since they do not have strict criteria to meet. When deciding which institute to use, pick the one that best meets your needs as a customer