Banks and credit unions offer similar services, but they also offer different benefits to its account holders and borrowers. Depending on what you’re looking for, one may be better for you. Check out the pros and cons of each option before you decide where to keep or borrow your money.
What is a Credit Union?
A credit union is a member-owned financial cooperative, created and operated by its members. This is the major difference between credit unions and banks. As soon as you deposit funds into a credit union account, you become a partial owner and share profits with other owners.
The Pros of Joining a Credit Union
- Ownership: Since the owners are the same people as the users, credit unions are more appealing to some because their services are tailored to the people who use them, rather than for the purpose of making a profit. If you want to be a part owner of a union and have a say in decisions, then a credit union might be the better option for you.
- Tailored service: Since credit unions are owned by its members, the services provided are usually more personalized for the user. It’s also easier to get to know your bankers since credit unions have small branches and there are fewer employees and fewer customers. It’s more likely that the teller at a credit union will remember your name than a teller at a traditional bank.
- Better rates: The most compelling reason to choose a credit union over a bank is for the rates you can get. Credit unions and banks offer similar financial products, but the products from credit unions often come at a cheaper price. Many people use a credit union if they can when purchasing loans or opening a credit card because the interest rate they pay is much lower than they can get at a dealership or at a commercial bank. Credit unions also offer lower annual percentage rates on mortgage and personal loans.
- Insurance: One thing you might be wondering is whether your money will be safe at a credit union. While banks are insured by the Federal Deposit Insurance Corporation, credit unions are also insured, but by the National Credit Union Share Insurance Fund. NCUSIF is funded by participating credit unions and is backed by the full faith and credit of the United States government. So safety should not be an issue when deciding which institution to use.
The Cons of Credit Unions
- Membership has restrictions: Since you have to be a member to use a credit union, not everyone can access any credit union. The unions will often have certain membership requirements. Most credit unions are focused on a specific community, like local teachers or members of the military. Eligibility requirements vary among credit unions.
- Low accessibility: Credit unions are typically community-based with fewer locations and smaller branches. You won’t find a credit union’s ATM on every corner like you might find one from Bank of America. In addition, credit unions might not be able to offer you technological support. It’s less likely that you’ll have a banking app on your smartphone or high quality online services. In addition, you probably won’t have access to 24-hour service like most commercial banks offer.
The Pros of Using a Bank
- More accessible: The major advantage of big banks is convenience. Banks are more likely to offer quality online services and 24-hour customer service lines. This might be better for you if you have an unusual or strict schedule. Banks also have multiple locations across the country and even worldwide. You will find an ATM easier if you choose to use a bank. This would be a better option for someone who travels often.
- Wider range of services: Since banks are often much larger than credit unions, they can usually offer more variety to account holders. They might have more loan and account options, as well as banking and investment options. For example, a commercial bank may offer five different types of checking and savings account, 20 different credit cards and multiple loan and investment products. On the other hand, a credit union will likely offer only two types of checking and savings accounts, a few credit cards and far fewer loan products.
- No requirements: The other advantage that banks have over credit unions is that anyone can use a bank. While a credit union only allows members that fit certain criteria, commercial banks typically have open eligibility.
The Cons of Banks
- Higher fees and rates: Since a bank is a business, designed to generate profit, they will probably charge as much as they can. In general, they usually charge higher fees and interest rates than credit unions.
- Less personal: Banks have countless ATMs, a multitude of branches and numerous employees. If you’re looking for personal, customized service with someone who is going to remember you every time, commercial banks are usually not the place to find it.
The bottom line is that credit unions offer better rates, but banks are more convenient. If you’re looking to save as much money as possible, choose a credit union. If you just need quick service anywhere and anytime, choose a bank. Whichever option you choose, make sure you understand all costs and fees—including monthly service, membership, overdraft, minimum balance and transaction fees—that the financial institution charges before setting up an account.