How Are Credit Unions Different From Banks
The main difference between credit unions and banks is the way they are organized. Credit unions are designed similarly to a cooperative where members are co-owners in the financial institution. Credit unions are not-for-profits that have the regulatory approval needed to offer the financial services that banks do, such as loans and insured deposits. However, unlike banks, the core of credit unions are members and member benefits instead of shareholders and profits.
Banks Vs Credit Unionswhats The Difference
It is important to know the distinctions between a bank and a credit union when deciding which financial institution you want to be a member of. Although both financial institutions do similar things, each offer different pros for their members. The biggest difference between a bank and a credit union is that a bank is a for-profit institution and a credit union is a non-for-profit institution. You may be thinking, what does this mean? For banks, this means that they are in the business of maximizing profit and issuing dividends to their stockholders, not their customers. Since a credit union is a non-for-profit institution, they put their profits back into their members through lower fees, better rates, added locations, equipment, more ATMs, etc.
Difference Between Credit Union And Bank
Despite years of poor service, many people still default to banks over credit unions. We strongly believe that if people really knew the difference between a credit union and a bank, a credit union would be the obvious choice.
Difference Between Credit Union and Bank: The tldr Version
- Banks are for-profit businesses banks make their decisions to benefit shareholders and make money
- credit union decisions are made by and for the benefit of members like you
- : credit unions generally have higher rates for savings accounts and lower loan rates
- SECNY Federal Credit Union offers the same convenient features you’re used to, but with local and personal service that the banks are too big to provide. At a bank, you’re just a number. At SECNY Federal Credit Union, you’re our neighbor.
Open an Account OnlineView Loan RatesWhat’s the Difference Between a Credit Union and a Bank?
The biggest difference between a credit union and a bank is who the institution is acting in the interest of. With banks, their decisions are made to benefit shareholders and make money.Banks are a for-profit business.
Banks depositors are called “customers”. Customers have no ownership interest in the institution. Banks are owned by investors who may or may not be depositors.
Banks board members are paid, and do not necessarily reflect the diversity of their customer base.
Banks are open to the general public.
Banks are for-profit corporations, with declared earnings paid to stockholders only.
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What Is The Difference Between Credit Unions And Banks
The bottom line is that banks are for-profit institutions, while credit unions are non-profit. Credit unions typically brag better customer service and lower fees, but have higher interest rates. On the contrary, banks generally have lower interest rates and higher fees. Banks, on the other hand, often have higher fees but more convenience regarding location, technological efficiency, mobile access, and rewards programs.
According to a report by the Credit Union National Association , credit unions in New York provided average financial benefits equivalent to $85 per member and $178 per household in 12 months ending March of 2018.
Despite the convenience of large banks, credit unions generally excel in customer service due to their non-profit status.
Still, credit unions don’t necessarily have the monopoly on premium customer service. Some smaller banks boast comparable customer service to most credit unions, especially in smaller communities.
Both banks and credit unions provide similar services such as checking and savings accounts, loans and business accounts. Bottom line: despite some discrepancies, the service and products you will get from either a bank or credit union is fairly similar.
Financial Products And Services Available
All banks and credit unions offer one or more types of deposit accounts, most often checking accounts and savings accounts. Many banks and virtually all credit unions also offer credit products, including home loans , auto loans , credit cards, and personal loans.
Financial Products and Services Available at Banks
Every bank, from the leanest mobile bank to the biggest multinational, offers some sort of deposit account. Some stop there, while others offer less common types of deposit accounts and investment accounts, along with credit products ranging from credit cards and personal loans to secured loans like mortgage and auto loans. Most traditional banks do make loans, historically a key revenue stream for financial companies some online banks dont issue loans directly.
The biggest financial institutions typically have the widest breadth of financial products and services, often complemented by private banking or wealth management services designed to craft bespoke financial solutions for wealthier clients. If you want to do all your banking, investing, and financial planning in a single location, you might naturally be drawn to a traditional bank built to do just that.
Financial Products and Services Available at Credit Unions
All credit unions offer savings accounts. These are usually known as share accounts because a portion of their balance usually $5 or $10 represents the members ownership stake in the institution.
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Which One Is Right For Me
The type of financial institution you choose to put your money with will really depend on what matters most to you. For instance, if youâre after a super low rate on your home loan, then your decision may be purely product-driven. In this case, you probably wonât be too fussed whether you end up with a credit union or a bank.
Or if youâve been burned by bad customer service before, then you may be more inclined to go with a smaller bank, mutual bank or credit union. If you do all your banking online, then you may be on the hunt for a financial institution with a more streamlined app. Bearing in mind that bigger doesnât always equal better tech. ING and UP both received the best Mobile Banking Experience awards in the 2022 Mozo Peopleâs Choice Awards for best Banking.^
Want to read more before you make your decision? Head to Mozoâs financial institutions page for a list of banks, mutual banks and credit unions operating in Australia right now. You can even read reviews from Mozo and customers on each institutionâs page.
^For the Mozo Peopleâs Choice Banking Awards, Australians shared their opinions on different bank providers. This included expectations and experience across a range of areas from trustworthiness to customer service. You can read more about the 2022 Mozo Peopleâs Choice Awards for Banking here.
Big Differences Between Commercial Banks Vs Credit Unions
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My first bank account wasnt at a bank. It was at a credit union.
At the tender age of 16, my mom and I walked into a branch of the Teachers Federal Credit Union and opened up a joint account. They printed out a little card, laminated it, and handed it to me. I stuck the little bluish green card into my velcro wallet and felt like Id aged just a little bit more.
I didnt know much about money back then. I knew I had a bank account and I could, from time to time, log in to a website and see how much I had saved.
When I went off to college in Pittsburgh, I opened a PNC Bank student checking account because they had ATMs on campus and a branch just down the street. The student checking account was the perfect product for a poor college student. PNC Bank was, to the best of my knowledge, my first commercial bank account.
Back then, I didnt know the difference. They were both financial institutions. They both had ATMs. For all practical purposes, they were the same.
It wasnt until I was older that I learned they werent the same. Similar, but not the same.
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Bank Vs Credit Union Ownership
The key difference between banks and credit unions is in ownership. Credit unions are not-for-profit organizations. They’re owned and controlled by their customers, known as “members.” The primary goal of credit unions is to promote the financial welfare of their members and to return profits to them.
Banks are for-profit organizations owned and run by shareholders. These investors might be thousands of anonymous stockholders or just a few large investors, depending on the bank. The main motive of banks is to maximize profits for their shareholders.
Rates And Fees At Credit Unions Vs Banks
Both types of institutions make money by lending it at higher interest rates than they pay out on deposits. They also make money through fees. Credit unions tend to offer more attractive rates and fees. Not only are they focused on maximizing profits for members rather than outside investors, but their not-for-profit status exempts them from the same kinds of taxes that banks must pay.
Butnot all banks and all credit unions are the same. You might find that some banks offer more competitive rates than credit unions.
Shop around before assuming that a credit union will grant you the better deal.
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How Credit Unions Have Better Loan And Savings Rates
Credit unions are traditionally known for having a community-feel and friendly service. They are also known for offering lower rates on loans, making them a great option if you are considering taking out an auto or mortgage loan or even if you want to refinance. Expect lower and fewer fees when you join a credit union.
While banks are known for their convenience, like having more available ATMs and branches nationwide, youre likely to pay more interest on loans you take from a bank.
Due to being for-profit financial institutions, banks find it hard to compete with credit unions when it comes to lower interest rates and fees. You may end up paying more in fees at a bank for errors, such as bounced checks or overdrafts. The same goes for interest rates on loans and savings accounts.
According to the NCUA, which regularly compares the rates for credit unions versus banks, credit unions produced higher interest rates on Certificates of Deposit , money market, and savings accounts while also posting lower interest rates on home and auto loans during the third quarter of 2021.
How To Join A Credit Union
You must meet the eligibility requirements in order to become a member of a credit union.
Generally, provincially regulated credit unions require that you:
- Are at least the age of the majority in your province
- Are a resident of the province*
- Are willing to buy an equity share in the credit union
- Have not declared bankruptcy in the past 7 years
Each member has an equal say in the election of the Board of Directors.
*Federally incorporated credit unions accept anyone who is a resident of Canada.
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Banks Generate Profit For Owners On The Contrary Credit Unions Provide Members With A Place To Manage Their Finances At The Best Possible Terms
Putting members first is deeply rooted in the history of the movement.
The first not-for-profit financial institution was established in 1864 by Friedrich Raiffeisen in southern Germany. Raiffeisen proposed that all community members pool resources. By doing so, individuals in need of loans could easily access the necessary funds. His idea was well-received and the first credit union model was soon established.
In 1909, the movement reached American shores. With Edward Filene serving as its pioneer, the movement gained momentum and continued to grow. In 1920, Edward hired attorney Roy F. Bergengren to assist him in the movements expansion. Roy created a more organized concept for the credit union we know today.
Figuring Out Whether A Credit Union Or Bank Is Right For You
When it comes to comparing a credit union vs. a bank, take time to research the respective institutions you’re considering. From a high level, it may seem that a credit union offers more perks and is the worthwhile option.
In some regards, this is true. You may find that you can secure better interest rates if you choose to work with a credit union than you would with a traditional bank. You may also find that there is much more of a communal feel.
However, you need to weigh all of your options before making a decision. For instance, some credit unions are so small they have longer teller lines and you may not have access to a mobile banking app. If you travel frequently or prefer to manage money from your phone, an app could be an essential feature for you.
You may also want to consider any minimum balance requirements that the credit union or banking institution carries. For example, a credit union may come with a lot of perks and favorable rates, but they may require a high minimum balance.
It may also be worth your while to evaluate any fees associated with ATMs. If you travel, you may be more inclined to choose a large national bank with ATMs across the country, as opposed to a credit union with a more local reach. Some credit unions, however, will waive ATM fees if you have to use an ATM other than theirs.
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The Credit Union Difference
Choosing a credit union over a bank is one of the smartest financial decisions one can make. On average, credit unions are able to offer better rates and lower fees than any bank. This is because all credit union profits are passed directly back to their members. What that means for a member of Premier Members CU is higher rates on savings and certificates and much lower rates on loans! In addition to that immediate impact to your personal financial bottom line, there are many other benefits to doing your banking with a credit union.
Who Can Join A Credit Union
As long as they have the proper identification, every Canadian citizen has a right to open an account with a federally chartered bank or credit union.
Provincial credit unions have more stringent rules. A credit union may require you to live, work, or attend school in the immediate area theyâre especially popular in small or underserved rural communities. Some cater to specific professions, such as farmers, teachers, or government employees, and may allow you to refer family or friends. To join a credit union, you must meet eligibility requirements and buy a share to establish membership.
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Personal Service Vs More Services
As part of a community, credit union members often receive more-personalized service than what big banks offer. For example, credit unions may be more willing to approve loans for their members, and they may provide financial education and outreach.
Because members must share a common bond, credit unions are often smaller than national banks, and as a result they may not be able to offer as many products. For example, not all credit unions offer commercial loans.
Their small size may also limit the number of branches each credit union has though thousands of credit unions have now joined together to provide shared branch services and shared ATMs so that members can do business at credit unions across the country as if they were at a home branch.
How Credit Unions Work
Charlene Rhinehart is an expert in accounting, banking, investing, real estate, and personal finance. She is a CPA, CFE, Chair of the Illinois CPA Society Individual Tax Committee, and was recognized as one of Practice Ignition’s Top 50 women in accounting. She is the founder of Wealth Women Daily and an author.
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Become A Member At Swecu
Scott and White Employees Credit Union is a community-based credit union that is run democratically. We offer checking and savings accounts, real estate, personal, and vehicle loans, as well as to our members. Visit our Join page to check our field of membership and apply today!
Consider what you want your financial institution to do for you, and remember to trust the organization that you choose!
Whats The Difference Between A Bank And A Credit Union
Always an excellent question. Read the or watch the short, that we have blatantly stolen from someone else.
If you have an account at a credit union, that means that you have a say in how it is run. You also get to vote who will represent you when you elect your Board of Directors. A bank is run by stockholders, who buy their decision-making position.
Any profits that credit unions do make, go back to our member-owners. This is why we can offer lower interest rates and charge fewer fees than for-profit banks.
Decisions are made right here, usually within the same day. You dont have to wait for a loan while we try to get approval from some higher up who lives across the country.
We feel this is the most important difference. At a credit union, you are seen as a person, not a number. We will do our best to call you by your first name and tailor our services to meet your individual needs. We genuinely care about you and want to provide you with the best service possible.
Other Peoples Fun Videos
These videos were created by Servus Credit Union in Alberta, Canada, and explain the difference between a bank and credit union in a lighthearted manner.
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