Credit unions are becoming as common as banks are these days but will you see a difference in your banking experience if you open an account at one? They both provide similar services but they offer somewhat different benefits for their account holders.
Here are a few differences you will see between the two –
What Are Credit Unions and Banks?
A credit union is a nonprofit entity. So, it is not just a business as you would expect but a cooperative financial institution where people merge their money. The financial institution then provides loans and services to all its members.
Banks are an actual business designed to offer loans and deposit accounts. These are much larger businesses, sometimes working as a chain, that can offer a variety services to its customers in the form of loans and accounts. They also have a great online banking presence and more investment options with a much larger customer service department than a credit union.
Within the banking world, there are also two types of banks. Larger bank chains, such as Bank of America, will probably have a presence or physical sites in almost every state. A smaller, community bank tends to be more regional so you will only find them in your local community. Community banks are great for local businesses and are more flexible in negotiating fees and interest rates.
Differences Between Credit Unions and Banks
One of the major differences between a credit union and a bank is that a credit union requires deposit holders to be a member. To do this, a person must qualify under the institution’s membership requirements. In contrast, anyone can open an account at a bank. However, the membership at the credit union enables the members to have a voting share in the credit union’s business affairs. This guarantees that the policies of the credit union are what members really want. This definitely does not happen at a bank.
The Federal Reserve regulates banks only. State chartered banks are regulated at both the state level and the federal level. Credit Unions are regulated differently. If it’s a state chartered credit union, than it’s regulated at the state level but if it’s a federally chartered credit union it is regulated by the National Credit Union Administration (NCUA).
Both Federal and state banks are insured by the Federal Deposit Insurance Corp. which insures deposits in banks and savings and loan associations. Federal credit unions are insured by the National Credit Union Administration, which has their own insurance fund. State chartered credit unions can either be covered by NCUA or they can be insured privately.
Credit Unions – Pros
Customer Service Credit unions are smaller than the large banks and can provide service on a more personal level. Banks on the other hand have a huge customer base and much larger customer service centers so the personal service is often horrible as customer become more of a number than a person. This has gained a lot of attention in the media lately depicting big banks as these mammoth institutions that don’t care a lot about their customers which make credit unions a more attractive option.
Interest Rates: On average, you will find that credit unions are able to offer higher-yielding interest rates for savings and checking accounts as well as loan products. This is due to the democratic way the organizations are set up. Sometimes smaller banks will be able to negotiate their interest rates so it’s always important to shop around to all the financial institutions for the best rates.
Checking account fees Credit unions also beat out banks on checking account fees. Since they are smaller and are working with less overhead, credit unions can pass on these savings to their customers. Free checking is found quite commonly among credit union and they require a lower minimum for accounts to avoid monthly maintenance fees than banks require.
Credit Unions – Cons
Accessibility Because credit unions are smaller and were created to serve a local area, you will not find a branch if you travel outside that area. You are still able to use ATM’s, which there often a fee to use, but many will offer to reimburse their customer for these fees if asked. Their customer service center will also be more limited and probably only available during normal banking hours.
Online Presence Credit unions also have a smaller online presence than banks do. Most do have a website but will have very limited online banking options.
Banks – Pros
Accessibility Banks are much easier to find and access than many local credit unions. Because of this, banks will still hold an edge over credit unions. You will be able to find bank branches and ATM’s more often and they will sometimes have branches that have weekend hours. Customer service centers are often available 24 hours a day so you will always be able to reach someone by phone.
Online Presence Banks tend to have more technologically advanced websites that offer more online banking options. You can transfer money, open an account and apply for a mortgage all online at any time of the day.
Banks – Cons
Customer Service Many people have been disappointed by the customer service that they receive from larger bank chains which can be one of the drawbacks of banking with a large bank. With thousands of customers, it’s hard for customer service representatives to provide personalized service every time. Customer service satisfaction rates for large banks tend to be low. However, you can always try a smaller bank which may offer more personalized service than its larger counterparts.
Interest rates It’s difficult to find an interest-yielding account at a bank these days and you really need to shop around to find good rates.
Checking Account Fees One of the biggest complaints about banks is the fees. Banks love to charge for overdrafts, monthly maintenance fees as well as out-of-network ATMs. You really have to watch your account and not make any math mistakes to make sure your account is always funded or you will suffer from ridiculous charges.
So which is better? It really depends on your needs. If you like the ability to access your banking institution at any time, than a bank will be a better choice for you with better online banking options, bigger customer service departments and easier to find locations. However, if you like higher interest rates, lower fees and more personalized service, you will be better off at a credit union.