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Banks vs. Credit Unions: What’s the Difference?

Piggy banks in a row.

So, you’ve just got your hands on your paycheck. But how do you turn that piece of paper into something useful? You know, something that you can pay your rent with, or buy a sandwich? Odds are, you’ll need a bank account. And when looking around at account options, you’ll probably find that there are different options, such as the type of financial institution that you can open an account at. Banks and credit unions are generally the most plentiful. 

While banks and credit unions often function, for the customer, in much the same way — they offer credit and debit cards, savings and investing products, for example — there are some key differences. For some people, choosing a bank versus a credit union can make a big difference, too.

All about banks

Banks are for-profit businesses. They take deposits, and offer loans. Banks make money by offering lower interest rates on deposits, and demanding higher interest rates on loans — they turn a profit on the difference.

They also tend to charge fees for different services. Some have fees simply for maintaining an account, others charge fees to use ATMs. In all, banks find ways to make money through banking services. Those services include loans, credit cards, investment accounts, and more.

As for-profit institutions, banks are usually owned by investors (most big banks are publicly traded), and as such, are expected to earn a return for their investors. 

Some of the biggest banks out there include (but are not limited to): 

All about credit unions

The big differentiator between banks and credit unions is that credit unions are owned by their members, and that they are generally not run to try and earn a profit. Remember, banks are owned by investors — investors who expect a return on their investment in the form of profits. Credit unions, owned by members, forgo the profit motive and instead aim to make banking services and products more affordable for the members.

As such, credit unions generally offer higher interest rates on savings accounts, lower interest on loans, and lower fees for services and products. For many people, that’s the most attractive aspect of joining a credit union.

Credit unions are also limited in who they will allow to join. For example, many credit unions are open to employees of certain companies. Or, perhaps they’re for members of a certain organization, or live in a certain area. 

Some of the bigger credit unions in the U.S. include:

Credit unions usually offer most of the same products and services as banks, albeit with lower costs — usually. And since they’re member-owned, credit unions generally offer better service and flexibility over banks.

Banks vs. credit unions: Which is better for you?

There’s no telling whether a bank or credit union is better for you — it’ll depend on your personal preference. There are some things to take into consideration, though.

For instance, most credit unions are located in specific geographic areas. Boeing Employees Credit Union, to take one example, usually only has a physical presence in areas in which Boeing has employees and business operations. As such, someone living in an area where Boeing has no presence may not want — or even be eligible — to join as a member.

Similarly, banks have a large geographic footprint. The big ones have branches everywhere, and their services can often be accessed almost anywhere in the world. So, perhaps the biggest advantage a bank offers customers is convenience. But since some banks are big (and have deep pockets), they may have technology offerings (apps, etc.) that credit unions can’t match.

Both do offer depositor insurance (through the FDIC for banks, and through the National Credit Union Administration for credit unions) up to $250,000. And, again, a bigger credit union is probably going to offer most of the same products and services as a big bank. 

With all of that in mind, whether you choose to deposit your money into a bank or credit union is up to you, and should depend on your individual circumstances and financial goals. But before you saunter off to the nearest bank or credit union, do some homework to see what your options are, and remember the key differences between the two types of financial institutions.

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