You may have heard people talk about switching over to a credit union from banks, but do you know the difference between them? Do they offer the same products? Is one safer than the other? Banks and credit unions do provide many of the same services, but the main difference is that banks are for-profit while credit unions are nonprofit. Each of these models has its advantages and disadvantages.
Banks
Banks tend to be more widespread and have better infrastructure—both physical and digital—so you’re not limited by where you live or work. Big banks, especially, have locations and ATMs all over the place, as well as commercial banking software that provides clients with online tools to help them track their spending and pay bills online. When it comes to convenience, banks outstrip credit unions at every turn.
Despite the convenience of banks, however, they have higher fees on accounts and interest rates on loans, which costs you more money in the long run. Additionally, not everyone can open or keep an account at a bank because of their eligibility requirements. Those with bad credit won’t be able to get a loan or open an account at most banks. At the end of the day, banks want to make money, so they’re only interested in serving people who can help them to that end.
Credit Unions
Credit unions, on the other hand, are much more accessible with regards to eligibility. To gain membership, you have to be part of a community that they serve. This could be based on where you live, where you work, or an organization you’re a member of, etc. They typically have lower fees, higher interest rates on deposits, lower interest rates on loans, and no minimum balance requirements. Credit unions prioritize their members and are more interested in helping them succeed financially than they are in making a profit. Because they’re cooperative, they distribute any profits they receive back to their members. They also seek to educate their members and provide crucial financial literacy resources.
However, credit unions lack many of the product offerings available through banks. They’re often behind banks in terms of convenience, both when it comes to technology and locations. If you’re someone who frequently travels or uses ATMs, you’ll have a harder time finding ATMs and brick-and-mortar locations for your credit union than you would a bank. You also may not have access to the newest apps or online tools with a credit union because they tend to be a step or two behind banks with regards to releasing new digital tools.
There’s no clear, one-size-fits-all winner here. They each have different strengths, so when choosing whether to join a bank or a credit union, the decision depends on your individual needs. The good news is that both are reasonably safe because credit unions are insured similarly to banks. Whereas banks are insured by the FDIC, credit unions are insured by the NCUA—both agencies insure up to $250,000 per account holder.
