The ongoing conversation on which is better “a bank or a credit union” often leads into a “banks versus credit union” debate. The reality is that banks and credit unions are quite similar in their product offerings and services. The main differences are in the ownership and profit motives.
Credit unions are not-for-profit financial cooperatives governed by an unpaid volunteer Board of Directors with customers as member-owners. Banks are for-profit financial institutions governed by a paid Board of Directors who ensure profitability for their shareholders.
Although banks and credit unions differ in ownership and profit motives, these shouldn’t be the only determining factor on which financial institution to choose as there are advantages and disadvantages to both.
The benefits to using either a bank or a credit union depend on your personal preferences and financial needs. Let’s highlight the key benefits of banks and credit unions so you can choose wisely.
What’s important to you?
Because of a credit union’s not-for-profit structure, profits are returned to members who benefit with higher interest on savings accounts and lower interest rates on loans. Although banks are often known for their fees, credit unions also assess fees, but may be comparably lower. Always ask for a fee schedule before opening any accounts.
On the other hand, banks invest in providing a wider array of financial products and often have better rewards programs to attract customers. If you need a full range of financial services–banking, investments or loans–then a bank may be the better option. Additionally, banks can be more accessible with a larger branch network and local ATMs, making it easier to access your funds and walk into a physical location.
Although banks can be more accessible, credit unions have a strong community and member focus. To join a credit union, you must qualify for membership. That means you live, work, worship in a given community, or share a common bond through employment or group affiliation. This creates a strong focus on serving the best interest of their member community.
However, banks tend to offer more convenient services on mobile and online platforms. Banks were early adopters of mobile banking that enables customers to open and access accounts, make check deposits, pay bills and make transfers easily. Credit unions are limited in their online services, but are increasingly offering more.
So which is the best choice for you?
The simple answer is that it all depends on your personal preferences and financial needs. Both banks and credit unions offer a wide array of banking products and financial services. Depending on your priorities, you may find it easier to choose a bank, a credit union or both.
It’s important to note the size of a bank and credit union can strongly impact the products and services offered. Many community banks have strong personalized service and community focus. Some larger credit unions may operate like banks, offering more financial products, but higher operating expenses can impact interest rates and fees on accounts.
If you care about low fees, high savings rates, your community and personal service a credit union is probably the best choice for you. However, if you need a branch in every corner or a one-stop shop for all your financial products a bank may be best.
By Jason Vitug, Founder – Phroogal