These days, there is no shortage of options when it comes to choosing an institution for storing your cash and taking out loans. It seems as if there’s a bank or a credit union on every street corner, which begs the question: what exactly is the difference between a bank and a credit union? While they may seem to offer all the same services (loans and checking/savings (share) accounts), they’re actually quite different in terms of their goals and services. There are pros and cons to choosing between a credit union vs a bank.
In short, banks are for-profit institutions that don’t require membership; they offer a greater diversity of services while credit unions are member-only institutions emphasizing their member’s services. Here, we’ll dive deeper into a credit union vs a bank and what these differences mean for customers.
The Difference Between Banks and Credit Unions
To distinguish between what a credit union is vs a bank, one of the main differences is that credit unions are more restrictive. These institutions are owned by its members who share something in common, such as the community in which they live. You must either pay a membership fee to join the credit union or meet certain share account eligibility requirements. When you open a depository account, it is called a “share account” rather than a “savings” account. This common bond across the institution can allow the credit union’s leadership to better understand and meet the specific needs of its members.
Another defining characteristic of banks versus credit unions is the fact that banks are for-profit (meaning a bank needs to make a profit to offer dividends to their stockholders) and credit unions are not for profit (meaning that the revenue earned is put back in the credit union or offered to the shareholders in the form of higher depository rates or lower loan rates). This is because credit unions are owned by members, so their accountability is to all of the members that have a share account in the credit union.
Banks are privately owned and publicly traded, and they must pay taxes in addition to paying dividends to stockholders. The payment of taxes assists the government in many ways. This is why a bank may pay lower rates on the depository accounts and charge higher rates on their loans. This is to maintain a profit. Credit unions on the other hand, under the credit union charter, are not required to pay taxes. In some cases, credit unions can then offer higher depository rates and lower loan rates.
In general, Banks and Credit Unions can offer a similar set of financial products. With financial cores such as BMA, a smaller bank or credit union can then offer a similar set of services as do larger banks or credit unions.
By having a technology core partner like BMA, a bank or credit union can customize your financial products and services. You will then have access to more advanced technologies. When assessing institutions, be sure to check out their website, their software, their mobile app, and other digital tools to make sure it offers the technology you need.
Banks tend to have more national locations and can offer more convenient access to ATMs while credit unions are generally confined to the community they serve. Fortunately, ATM networks are available across the country to allow access to your funds in either a bank or a credit union.
If you move around or travel frequently, you’re more likely to have better access to your cash via ATMs and in-person service if you opt to use a bank. But recently, credit unions are forming Co-Op shared branch networks that allow credit union members to conduct a variety of transactions at other credit unions. This allows them to serve members in many different parts of the country when they move or travel. As you consider credit unions in your area, make sure they’re part of this network so they can guarantee easy accessibility to your money.
When it comes to services, credit unions emphasize quality of service over quantity of services, while banks generally do the opposite. One isn’t inherently better than the other; it simply comes down to whether you value a diverse range of services from the institution.
With the addition of technology, you can have the products that you need from either a bank or a credit union. If you decide to join a credit union, you’ll be part of a community of members that can have an association. If you open an account at a bank, you may have a wider variety of locations and services.
In terms of safety, banks and credit unions are practically the same. They are both federally insured — banks by the FDIC and credit unions by the NCUA. This means that in an event of an institutional failure, your account is covered up to $250,000.
How to Choose Between a Bank or a Credit Union
Because there are benefits to both banks and credit unions, there’s no right or wrong choice when deciding between the two options. Each individual can decide for themselves what their priorities are in a financial institution, and head toward whichever one best serves their needs.