Written by: Susan MelonyThere are plenty of financial decisions you make throughout your life, and one is whether you should work with a credit union or a bank. The financial institution you decide to work with is going to play a role in what the lending process might look like for things like automobile loans or mortgages. It will also affect the fees you pay and the service you receive.So, how does a credit union compare to a bank?Should you become a member of a credit union, or are you better off going with a traditional bank? The following are things to know about how the two compare to one another.
In the general sense, there are a fair amount of commonalities between the two.Both a credit union and a bank will offer services and products like checking accounts and loans, for example. Other products you can expect to see at both types of financial institutions are small business loans, credit cards, savings accounts, and money market accounts.Both will tend to offer basic features like mobile banking and direct deposit, and both have insurance on deposits.
What Is a Credit Union?
On the surface, a bank and a credit union may look very much the same, but they aren’t.A credit union is owned by the members and is a nonprofit organization. Since credit unions aren’t trying to earn a profit, they tend to offer better rates and lower fees.You may have to meet certain requirements to join a credit union, though.For example, there are credit unions specifically for people who work for certain companies or the local government. There may be credit unions that offer membership based on participation in certain groups, or based on what county you live in.A bank is not primarily beholden to its customers and is instead focused on its shareholders.Banks are also driven by profitability.When you open an account at a credit union, you are then an owner-member, and your money that’s deposited is used to make loans to other members of the credit union and vice versa.
The Benefits of a Credit Union
Credit unions tend to offer not only lower feeson things like checking accounts but higher interest rates on deposit accounts so you can potentially earn more on your money. Credit unions may also feature lower rates on loans you take out.Of course, this doesn’t always have to be the case, so do comparison shopping in your local area before you decide on an institution.Sometimes people worry about joining a credit unionbecause of insurance. Banks have insurance on deposits from the Federal Deposit Insurance Corporation or FDIC. The FDIC insures each depositor up to $250,000 for each account they own.Most credit unions actually do offer something similar in terms of insurance.The National Credit Union Administration provides accounts up to $250,000 of insurance, per ownership category.It’s very similar to the FDIC, and the U.S. government backs both.
What Are the Downsides of a Credit Union?
While a credit union can be a great optionin terms of low fees and interest rates and great customer service, some downsides come into the equation when you compare them to banks.First, there are membership requirements. You have to ensure you’re qualified to be a member of the credit union and that you meet their guidelines.Another downside is the fact that there may be fewer locations of the credit union you join, so you may have to travel if you need to visit in person, or you may have more challenges when you’re out of town. A credit union might also offer less access to ATMs than a traditional bank, although this doesn’t necessarily have to be the case.Finally, credit unions often have less robust technology such as mobile app features than traditional banks and especially online banks, so if this is important to you, do your research before you decide on a credit union.Many banks have a bad reputation with consumers, which is why people are increasingly turning to credit unions.Some of the reasons for this reputation include the fees which are often incredibly high, and many feel unfair. There are also often issues with customer service, especially at larger banks.Banks can be more convenient and accessible but if you want more than that, think about a credit union instead.