Consumers can do some background checks on credit unions vs banks when it comes to their banking needs and which of the two to go with. This is because there are many similarities between credit unions vs banks and you may be wondering which one will be perfect for your financial transactions.
Although both types of financial institutions allow you to easily deposit and borrow money for many uses, when it comes to choosing where you want to bank and how your money is handled, there are clear differences between the two that matter.
Credit unions vs Banks eligibility
The general public has easy access to banks. Although regional banks may limit some of their products and services to certain people that live in the area where the bank is located, national banks are able to extend individual accounts to legal residents that are 18 years and above.
On the other hand, there are limits required to the customer base of credit unions, which are groups that share a common bond, known as “field of membership”.
Good enough, the requirements are very easy to meet. You may join credit unions based on the eligibility of:
- Where you live
- Where you work
- The eligibility of a family member
- Your organizational membership such as your place of worship or school.
No matter where you are, there is a chance you may be eligible for any nearby credit unions. Some credit unions also serve members entirely online or remotely, this allows you to the bank and transacts with credit unions in other states.
Credit unions vs Banks Operation
Both banks and credit unions make money through loans they give at higher interest rates than they pay out on deposits, and also through fees. The main difference between credit unions and banks is that credit unions are non-profit organizations that are owned and controlled by their customers, called “members”.
The aims of credit unions are to promote members’ financial welfare by making and returning profits to their members.
While on the other hand, banks are established with the sole aim of making profits, owned and run by some shareholders or investors. There could be few large investors or numerous stockholders running the affairs of the bank. So the sole objective of the bank is how to maximize profits for these shareholders and share the profits among them.
Credit unions vs Banks products
The products offered at both financial institutions are almost the same. The choice of credit unions or banks won’t limit the products available to them.
Most of the credit unions and banks offer:
- Savings account
- Checking account
- Certificate of deposit (CDs)
- Money market account
- Home loans (including refinancing and purchase loans)
- Business bank accounts
- Land and construction loans
- Auto loans for both new and used automobiles.
But banks are likely to offer extra products such as student loans and trustee services. Although small credit unions may not be able to cater to your needs, you should at least ask, since it doesn’t kill to ask.
Most of these small institutions have also partnered with some service providers to so as to be able to provide these services to their customers.
Both of these institutions also offer online banking transactions and mobile applications to manage your account while on the go, though banks’ features may be faster and could be cutting-edge. But still, both allow for any online transactions ranging from depositing with your mobile device to paying bills online and also transferring money between accounts.
Credit Unions vs Banks’ Rates and Fees
Another key difference between credit unions vs banks is that credit unions tend to focus more on maximizing profits for their members rather than outside investors, and they also offer more attractive interest rates and fees than banks.
Their non-profit organization status does not also include them in the same taxes banks must pay. Due to this, they are able to give high-interest rates on savings accounts and Certificates of delivery (CDs), lower rates on loans, and also lower account fees than banks.
The mix of these benefits allows their customers to maximize their returns on deposits and reduce their loan costs.
Banks, on the other hand, also offer low rates on customer deposits and higher rates on loans due to the higher tax burden on them and their priority to maximize profits for their investors.
But neither are all banks nor all credit unions the same. Some banks may offer competitive interest rates than most credit unions, so it is better to do your research very well before you assume a credit union will offer you a better deal.
Credit Unions vs Banks Security
You may be wondering if keeping your money with banks or credit unions is safe. The truth is, so far the institution holds insurance, your money is perfectly saved with either of the institutions.
The U.S. government offers the safest insurance for both institutions.
- For banks, you are protected by the Federal Deposit Insurance Corporation (FIDC) insured funds with backing from the government.
- While for credit unions, you are protected by the National Credit Union Share Insurance Fund (NCUSIF).
If it happens an institution goes under, part or all of your money may be insured, which means the lost fund will be refunded. Your account may be transferred to a new institution in most cases, and the same account number and account balance will be the same as before.
Both FDIC and NCUSIF coverage protects up to $250,000 per depositor, per institution under the current law. If you are managing more than that amount, spread your funds between different account registrations and institutions.
You can also have more than the insured $250,000 in one place if you have accounts in different ownership categories. For example, both your personal checking account and your retirement savings account at the same institution might be counted separately.
A very small group of credit unions offer private insurance coverage, majorly through the American Share Insurance company.
Credit Unions vs Banks Customer Service
Customer services in both institutions depend on the overall culture of the organization. How you interact with staff may also depend on who answers your queries every day.
Having said that, small banks and some credit unions are known for the high level of customer service they provide in contrast to large banks. This is because it is easier to get to know each other with fewer staff and customers.
It is also possible you be working with the same set of people every time you visit the branch, and a long-lasting relationship may be developed and those relationships may easily make it possible for you to resolve issues quickly.
A less personalized but more consistent experience should be expected at large banks. This is because their staff has probably completed their training program with some rigid protocols for dealing with service issues, which gives them little flexibility to accommodate your special needs.
Involving credit unions also offer services at some shared branches, which allows you to visit other participating credit union branches nationwide. Withdrawals and deposits can be made at those branches, and payments and transfers can also be made, although complex issues may need to be worked on by your local credit union.
Credit unions vs banks, which is better?
When it comes to Credit unions vs banks issues, both institutions offer robust financial services. Banks sometimes have more specialized product deals and fewer eligibility requirements, but they also offer higher fees and less competitive interest rates.
Credit unions, however, are more selective with their members, and the specialized product deal you are looking for may not be offered by the small ones. But those who join the field of membership enjoy more competitive and attractive interest rates and fees.
The decision comes down to the rates, fees, and the product you are looking for at the institution you are looking at if ownership isn’t that important to you.
If you want to change to different credit unions or banks, steps should be taken to avoid issues when your money is being moved.
A checklist for switching banks can be used to make the process an easier one.