How is a credit union different than a bank?

Banks are in the money-making business. We must make sure that we understand that although they offer valuable services, their goal is to maximize their profits through the fees they charge consumers. One less known alternative to banking are credit unions. So how is a credit union different than a bank? Credit unions offer the same services as banks, but they are not-for-profit organizations which are owned by their customers (members). Profits are distributed in the form of savings to their customers through better interest rates and lower fees. Of course, like anything else there are some drawbacks, or everyone would be using a credit union instead of a bank. Knowing the pros and cons of using a credit union will help you make the best decision when it comes to banking!

Accounts are insured

You can be sure that your money is safe at a credit union. Like banks your money is insured. However, instead of being insured by the FDIC it is insured by the NCUA (Federal National Credit Union Administration). This means that like a standard bank, up to $250,000 of your deposits are insured. If an insured credit union fails then you will get back your deposits. In that aspect, a credit union is just as safe as a bank!

Profits are passed down to members

This is probably the most attractive aspect of credit unions that should be something you take advantage of. Since credit units are not-for-profit, they are not focused on profits but on covering their operating cost. Profits are passed down in the form of better interest rates.

For loans this means lower interest rates and savings on credit card interest, car loans, student loans and mortgages. For savings, this means higher interest on savings accounts, money market accounts and interest checking accounts. In the long term, both can create a positive impact on your wealth. Below is a comparison of national average rates from Credit Unions vs. Banks. As you can see interest rates at credit unions are consistently better through different products.

Membership is required

Credit unions are unique because they limit their customer base to a group of people who share a common bond or “field of membership”. A field membership can be broad and can include things like employer, church, school, or community. A credit union can set their membership criteria to any of these and will require you to have a connection to the certain criteria they set. For example, a credit Union located in Brooklyn, NY has set specific zip codes as their criteria for membership. They have then defined a relationship to these communities as living, working, going to church or school, having family or volunteering in these zip codes. Although the membership field is specific, they had a broad definition of what the requirements to meet the criteria are.

Unlike a bank where anyone can open an account, credit units require you to fit specific criteria. This should not discourage you from finding a credit union you can join. The best way to find one is to search for credit unions in your area and determine your eligibility.

Personalized customer service is a priority

When you open an account with a credit union you do not only become a customer you are also a member. So they try to provide a more personalized experience. Since they limit their membership, they have less customers going in and out daily making it easier for them to get to know you personally. Those working at a credit union may even have more flexibility to handle issues than normal bankers because they are working for a smaller organization and can have more authority and flexibility with the way they deal with customers. Credit unions are also known to offer financial literacy resources to their members. Of course, all of this depends on the organizational culture that each credit union establishes. It is more likely than not that this is the case because you are dealing with a smaller financial institution.

Why would you choose to go with a bank?

As you can see there are quite a few benefits to banking with a credit union. So why would people lean towards using a bank? Here are a few things that you should keep in mind when determining if working with a credit union may be the best option for you.

Membership requirements

This may discourage people from finding a credit union that will accept them. However, even though there is a criterion to join, some credit unions have broad requirements as to what qualifies you to meet the criteria. The chances for you to qualify to a credit union are high and the effort pays off through better interest rates.

Ease of Technology

Large banks have the funds to invest in making the best banking apps and websites. Whereas credit unions may not have the same funds due to their size. This means your online experience may be limited to the size of the credit union and the investment they make in technology.

Wider branch availability

Since most credit unions are local it may make it difficult to find a branch or ATM when you move or travel. If this is something of concern to you then you should keep this in mind when selecting a credit union and look for a larger credit union which may have more branches available.

Fewer options in products

Although the basic products offered are the same at both a bank and a credit union a bank is more likely to offer more specialized products. It’s important to understand your needs and evaluate the offerings at both institutions. Both are likely to offer these products:

• Checking accounts
• Savings accounts
• Money market accounts
• Certificates of deposits (CDs)
• Business bank accounts
• Home loans (including purchase loans and refinancing)
• Auto loans for new and used vehicles (including motorcycle and RV loans)
• Land and construction loans

When deciding where to bank, prioritize what is important to you when determining what will work for you. Remember that it is not an either-or option and that you can opt to open accounts at a bank and a credit union to take full advantage of the benefits provided by both. Always keep in mind that as the consumer have the power to select what benefits you the most!

There are of course some drawbacks to using credit unions that you should keep in mind.  However, knowing that this alternative exists is important because you can make sure that you evaluate all your choices when banking.