Before getting a saving account or a loan from a bank or a credit union, here’s a detailed article that will showcase both institutions, making it easier for you to decide which one to opt for. Although both banks and credit unions are financial organizations that secure money for the public, each has its pros and cons. Understanding the difference between these two organizations will contribute to making the best decision.

How does a bank work?

Shareholders or investors run banks. Banks charge interest on loans and generate profit through it. Banks are for-profit organizations that do not usually offer competitive rates. You do not require any membership to open a bank account. Banks usually charge high fees and lower saving rates. Anyone can do business and make transactions through a bank locally or internationally

How do a credit-union work?

Credit unions are typically smaller than banks and are non-profit institutions. Clients can deposit into their accounts and can apply for loans. Credit unions also offer credit cards, just like banks. There are several terms that a credit union uses that differ from the bank but have the same functionalities as a bank. For example, banks use the term certificate of deposit while, on the other hand, credit union calls the same phenomena as share certificates.

Banks are for-profit organizations

Banks are privately owned or publicly traded, making them a “for-profit” organization. For-profit organizations offer several different types of products and services. The ultimate goal of a for-profit organization is to make money and pay shareholders and investors from the profits. Banks make sure that the revenue or profit is greater than the cost spent. The work of this for-profit organization is to generate revenue from the interest rate that is charged and paid. Banks typically create money by making loans.

Credit unions are Non-Profit Organizations

Credit unions are run co-operatively by their members. They are non-profit financial institutions and typically receive subsidies from the organizations that they affiliate with. Credit unions do not have to generate revenues for their shareholders. Neither do they have to charge their clients greater interest than cost value—credit union payroll taxes to the state.

The goal of a credit union is to provide affordable financial products for its clients. This non-profit institution generally has the best policies and terms. Credit unions usually charge lesser than banks even when opening an account. The credit union requires membership, and you can make transactions nationally or locally. Credit union prioritizes serving the community, but their financial products are limited. Credit unions generally offer lower interest rates on loans and greater interest rates on checking accounts. As a bonus, they may also provide their loyal customers with additional income and discounts.

The credit union requires membership while banks do not

Banks can do business with almost anybody with or without any previous banking history. However, credit unions do not work like this. Credit unions are not just for everybody. A special membership is required for you to be part of a credit union. You must be eligible to meet certain requirements and pay a specific membership fee to get yourself registered in a credit union. On the other hand, bank accounts are for everybody. They do not have to meet any eligibility criteria and can get themselves registered easily.

Financial product offerings

Before you select between the two, analyze the pros and cons of credit unions vs banks. Banks offer vast financial products to their customers, while credit unions have limited offerings to avail. Banks have a wide range of offers, from personal banking to commercial banking. Some of the main offerings of banks are savings accounts, retirement accounts, and money marketing accounts. They provide credit cards and loans on interest.

While, credit unions, on the other hand, have basic financial product offers like mortgages, saving accounts, and loans.

Interest Rates

When looking for a loan of any type, it’s always a good choice to check both your local banks and credit unions. Credits unions are preferable in this regard as they have lower interest rates. Thus, it is difficult for banks to compete with credit unions in this regard. Credit union aims to serve all members with low-interest rates because of their business structure.

Fees

The registration fees of banks and credit unions are quite different from one another. Banks charge more fees than credit unions. Banks have to make more profit for their shareholders, so they charge on errors such as bounced cheques and over-drafts. It is advisable to compare both online banks with functional firms before depositing your fees.

Safe Money

Whether you choose a bank or a credit union, your money is safe in both of them. Your money is safe even without private insurance. Although, you should get insurance when you have more than $250,000 in your bank account. The credit union ensures money with NCUSIF, and banks ensure money with FDIC.

Easy Access

Credit unions are not easily accessible as they do not have many branches as banks do. They have lesser financial products and limited ATM access. On the other hand, banks are everywhere now. You can access ATMs 24/7 and get your money from your nearest ATM branch at any point in time. Banks provide a wide variety of financial products which the general public can easily access.

Digital Services and latest technologies

Banks and credit unions both offer several digital services following the latest trendy technologies, which are user-friendly. This financial institution rapidly adds technical services at a faster pace than credit unions. They offer mobile applications from which money is easily transferred and deposited in a few seconds. Mobile banking services are far more advanced and better than credit unions. All of these digital technologies are fully automated and are made instantly.

You can easily move money, pay bills, apply for loans and make purchases on the go from your mobile devices with a simple click.  If digital transactions hold more importance for you, then you should go for banks.

Bottom Line

Banks and credit unions have several similar offerings, but they are not the same. After looking at all the pros and cons of banks vs credit unions, you can make this personal choice. Some people find banks more convenient because of larger networks and easy accessibility, and some might prefer credit unions because of lesser interest rates. The credit union offers personal services while banks on the other hand provide general services.

You can come to your conclusion after you set your priorities straight. Give a thought to what matters the most to you when looking for a financial institution, and then make your decision.

Author Bio:

Ann Handley is a financial analyst who assists individuals and organizations to make important investment decisions. She has in-depth knowledge about the pros and cons of credit union vs bank. Very wisely, she manages and handles the long-term and short-term goals of her clients. She has done a Master’s and earned Chartered Financial Analyst Credential to get to this position.

Ann Handley provides different options and suggestions to her clients so that they could make the most of their money. Mrs. Handley has solid knowledge and many years of experience that ensure the success of the clients.

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