When you drive by a credit union or bank, there is not too much of a difference. At first glance, the only thing different is the name. They both offer a lot of the same financial products such as:
- Checking and savings accounts
- Debit and credit cards
- Loans and mortgages
Even though these financial institutions have the same products, they do have several differences that you not know about. So which will it be, credit union or bank? This article will break down some of the underlying differences between the two institutions.
Banks have been around since antiquity. The world’s oldest running bank is in Italy. It opened its door in 1472 and is still in operation today. By definition, banks are businesses that keep your money. They then use this money to create a profit by loaning it to customers and making other investments. Banks essentially make their money from your deposits and ATM fees. Every time you make a deposit, it’s like you are loaning money to your bank. Depending on the bank, you are paid back this loan in interest with rates that can vary depending on the institution. With that being said, the main focus of the bank is to generate profits and increase the shareholder value for investors. This makes them a for-profit institution.
Banks tend to be locally based and have several branches across a wide array of cities. Banks also do a lot of lobbying. This is to ensure that the regulations of the government don’t interfere with the profit margins of the bank. Banks usually have more products to choose from. Unlike credit unions, banks also offer stock investment programs and retirement plans.
The term, “member FDIC” is commonly used when referring to banks. This stands for Federal Deposit Insurance Corporation. The FDIC insures the safety of your money while it is in the bank. This insurance covers $250,000. This amount is per depositor and per insured bank.
The Credit Union
Credit unions are not for profit organizations that treat you like a member. As a matter of fact, when you make a deposit into an account with a credit union, you become a member. As a member your deposits are used to buy shares in the business. Unlike the bank, the credit union isn’t that old. America had its first credit union in 1908 when Congress passed the Federal Credit Union Act. Once the act was passed, it allowed credit unions to be created anywhere in the United States. Unlike banks where just about anyone can open an account, to join some credit unions, you must be affiliated with a certain company or entity or be a family member of someone who is an affiliate.
The atmosphere of a credit union is a lot different. They often have friendlier service and your experience there can be more personalized. Credit unions are also more likely to assist in financing smaller projects at lower rates than the bank. Since they are a not for profit entity, the benefits go back to its members in the form of reduced rates and fees on the products that they offer.
Credit unions are insured as well. NCUA or National Credit Union Association, also insures its member’s money up to $250,000. Unlike banks that are normally found on every corner, credit unions tend to have fewer locations and access to ATMs. Credit unions also lack several investment products that banks may have.
Which One to Choose
In the great debate over credit union vs. bank, it can be a difficult decision to make. They are both great financial institutes, each with their pros and cons. The credit union vs. bank debate will probably never go away. I, personally, have both. I recently, purchased a car and I am considering refinancing through my credit union because they have better rates than my bank. So what will it be, credit union or bank? Find out what right for you.
Consider the following when choosing, credit union vs. bank:
- Products and services – Remember, credit unions are limited in the services that they offer.
- Big Bank or Small Credit Union – which is more important to you? If you are interested in all that banks have to offer but love the small community feel, try looking for a small community bank. Credit unions aren’t for everybody so a small bank may be better.
- Convenience – Credit unions aren’t always that convenient, and can be difficult to find or join. So finding an ATM will be just as hard. For this reason, some credit unions offer ATM fee reimbursement. Banks on the other hand are always right around the corner or in your local grocery store.
- Rates – the rates on certain products will vary by institution, be sure to determine which rates will work out best for you before making a final decision.
If you are still unsure or just need a little more information, check out the Business Insider website.