Key Differences Between Credit Unions and Banks
Managing your finances can be confusing. In fact, even knowing where to store your money can seem like a quandary, especially if you are new to banking. You may have heard people talking about how much they love their bank, or how much better it is to use a credit union, but is there really that much of a difference? The answer is yes, there are several differences between credit unions and banks, which we will explore here.
First, let’s look at how they are the same. Banks and credit unions are similar institutions in that they provide checking accounts, savings accounts, certificates of deposit (CDs) and investment accounts, as well as mortgages, auto loans, and small business loans. Additionally, both banks and credit unions are insured by the United States government for up to $250,000 per deposit account. However, the way banks and credit unions are structured is very different, and so are the benefits they provide their customers.
- Banks are for-profit, while credit unions are not-for-profit organizations. Banks invest the money you put into their care and the interest they take in from loans, and they use that money to grow the company, passing dividends to the owners. Credit unions, on the other hand, are structured differently. Because they are non-profit, the dividends they earn are passed along to their members. In addition, credit unions are member-owned, and members have the opportunity to vote on things like who should be elected to the board of directors.
- Credit unions pay higher interest rates than banks. Because they’re member-owned, credit unions make higher interest rates on checking accounts, savings accounts, money market accounts and CDs a priority. In contrast, because banks are profit-driven and have a higher overhead, their bank accounts pay lower interest rates.
- Often, the fees on credit union accounts are lower than those on bank accounts. For the same reason that they provide lower interest rates, banks often have higher fees. While banks often charge monthly fees and high overdraft charges, credit union fees are typically lower, with many offering free checking and savings accounts.
- Loans through credit unions typically have better terms than loans from banks. If you’re a credit union member, you can typically get a lower loan rate on a car loan, mortgage loan, personal loan, or small-business loan than the customers of big banks. What’s more, credit union officers are often willing to work out loan options for people with low credit scores, while banks are likely to reject applicants who have low scores, because they calculate risk based on credit scores alone.
Judging from the information so far, it may seem that credit unions are a no-brainer. In truth, banks have some advantages as well.
- Banks offer better rewards programs than credit unions. Bank credit cards may offer rewards points or cashback, and opening a bank account will often score you a sign-up bonus. Credit unions don’t typically have these options.
- Banks tend to have more locations than credit unions. Credit unions are often local or regional, while banks have physical locations across the United States. This makes it easier if you tend to move on a regular basis, and it’s more convenient for accessing funds in person or at ATMs.
- Banks generally have better technology. This is because big banks have more resources, so they have better websites, mobile apps, advanced card technology, mobile check deposit, and mobile wallets. Credit unions are gaining on banks in this area, but for now, banks tend to have the advantage.
- Banks are easier to join. Credit unions typically limit their membership, so that you can only join through your employer, place of worship, physical location, or membership in a specific organization. Banks, on the other hand, see you as a source of revenue and are eager to have you open an account.
So with the benefits fairly evenly distributed, how do you choose between a bank and credit union? First, determine which options are most important to you. Then, look into specific banks and credit unions to see what they have to offer. Include online banking services in your research, and look for the organization that gives you the most of what you need. Still can’t decide? There’s nothing that says you can’t have more than one account, in more than one institution.
Since 1941, GCS Credit Union has been serving customers in Illinois, providing loans, basic savings, and other banking services. Having started as a single location, we’ve spread throughout the area, and now support Sangamon, Logan, Macon, Marion, Jefferson, Perry, Jackson, Williamson, Jersey, Macoupin, Montgomery, Madison, Bond, Clinton, St. Clair, Monroe, Washington and Randolph counties. Dedicated to focusing on our members’ financial needs, we’re a not-for-profit, member-owned financial cooperative. If you’d like to know more about the benefits of a credit union, call (618) 797-7993, or contact us through our website.