When it comes to opening a new checking account, savings account, line, or loan of credit, you have many options rather than the local and national banks. One of the most overlooked is credit unions that offer the same financial services as banks. Many people get confused about whether to use a bank or a credit union.

So what exactly is a credit union, and how does is it differ from a bank? Even though both banks and credit unions offer the same financial products, there are some notable distinctions between the two products. Understanding the difference between them and the benefits of using a credit union over a bank can help you make a better choice for your money.

The profit status

Bank institutions are for-profit which means that they are publicly traded or privately owned, whereas credit unions are non-profit institutions. A credit union belongs to its members because it is developed as a cooperative.

Basically, a credit union has open membership for people who share something like the industry they work for, the community they live in, faith denomination, or membership in another organization. As a non-profit organization, a credit union is exempt from federal taxes, and some credit unions get subsidies from organizations they are affiliated with. Therefore a credit union doesn’t need to make profits for its shareholders.

A credit union provides its members with the best terms for their financial products, which means they get lower rates on loans, pay fewer fees and receive higher APYs on savings than in banks.

On the other hand, banks are institutions whose goal is to make a profit. That means that a bank is focused on making a profit rather than on account holders’ needs. This is the more reason why banks charge higher rates and more fees than credit unions. Their interest rates are higher, and APYs on savings are also lower than in credit unions.

Why choose a credit union?

A credit union has the interest of its members at heart. That means you are most likely to get personalized customer service in a credit union than a bank. Another reason to choose a credit union is that they provide financial education to their members as part of their services.

Most importantly, credit unions are non-profit institutions, so they have friendly requirements such as no minimum balance, lower deposit requirements to open accounts, and no atm fees. Also, they offer lower interest charges on loans than in banks.

Why choose a bank?

Despite the advantages of credit unions, many people still choose banks. Firstly, banks are open to any consumer interested in an account or other financial products as long as they don’t have a bad banking history. But credit unions are only available to members, and you may not be eligible if you don’t have any affiliations to the community served by the credit union.

Also, banks are convenient since they have more branches and ATMs available. Furthermore, banks invest more in financial technology like mobile banking compared to credit unions.

The bottom line

While credit unions offer better interest rates and lower-cost services, banks have more services and advanced financial technologies. With this information, it is easy to decide what suits you best.


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